Worthington Industries, Inc. Aktie

Hello everyone, thank you for joining us and welcome to the Worthington Enterprises Fiscal Year 2027 First Quarter Earnings Call. After today's prepared remarks, we will host a question and answer session. [Operator Instructions] I will now hand the conference over to Marcus Rogier, Treasurer and Investor Relations Officer. Marcus, please go ahead.

Thank you, Paige. Good morning, everyone, and thank you for joining us for Worthington Enterprises' First Quarter Fiscal 2027 Earnings Call. On call today are Joseph Hayek, our President and Chief Executive Officer, and Colin Souza, our Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risk and uncertainties that can cause actual results to differ materially from those expressed or implied. For more information on these risk and uncertainties, please refer to our earnings release issued yesterday after the market closed, which is available on the investor relations section of our website. Additionally, our remarks today will include references to non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures can also be found in the earnings release. Today's call is being recorded and a replay will be available later on our website at WorthingtonEnterprises.com.

With that, I'll turn the call over to Joe for opening remarks.

Thank you, Marcus. Good morning, everyone. Welcome to Worthington Enterprises' Fiscal 2027 First Quarter Earnings Call. We had a strong start to fiscal 2027. While we faced some market and operating headwinds, our team continued to execute, serve our customers, and make progress on our strategic initiatives. I want to thank my colleagues around the world for the focus, creativity, and grit they bring to Worthington every day. In Q1, we grew sales by 13% year-over-year, including 7% organically. Adjusted EBITDA increased by 10% to $74 million.

And we generated $54 million of free cash flow, nearly double the prior year quarter. Adjusted EPS was 82 cents compared with 78 cents a year ago. We continue to deploy capital thoughtfully in the quarter, including the repurchases of 335,000 shares of our common stock. While we were pleased with our progress, the quarter was not without challenges. Informance solutions, as we anticipated, face headwinds in our cooling and construction business. The channel inventories are right-sized and new home sales are muted, demand for newly mandated A2L refrigerant cylinders is lower than it was a year ago, creating a difficult comparison. Additionally, steel availability across the industry remains tight and lead times in the quarter were extended. FEMA had created some disruptions in production and scheduling for both cooling and construction and for our balloon technologies.

Our teams are actively working through these issues every day, prioritizing our customers and ensuring that we are the best partner that we can be. While we face some headwinds in the quarter, our performance was a reflection of our businesses and our people. Resilient. Creating specialty solutions delivers strong sales and even double-digit growth as that team continues executing at a high level. Our water business is performing very well as our 80-20 work matures and helps us focus on resources on the products and opportunities that create the most value. WAVE and ClarkDietrich also delivered higher equity earnings and were important contributors in the quarter. We optimize and grow Worthington. Our strategy is not complicated. Leveraging the Worthington business system, transformation to improve our businesses, disciplined M&A to add capabilities and strengthen our portfolio, and innovation to grow organically where we have attractive opportunities. We continue to use 80-20 to optimize our businesses.

As we sharpen our focus, improve working capital and allocate resources where they matter most. We've seen meaningful progress in our water business and are now extending that discipline into our portable fuel and torch businesses. We're also continuing to improve productivity through automation, AI-enabled tools, and other transformation initiatives. We remain disciplined about growth through M&A and we're focused on opportunities where we believe we can bring unique advantages as an owner and create long-term value. Our integration of LSI continues to progress well, and there we're focused on reaching more prospective customers and introducing them to LSI's compelling value proposition. I want to spend a little more time this morning on organic growth because we're increasingly seeing our innovation capabilities translate into meaningful commercial opportunities. One of the most topical examples of the kind of organic growth opportunities we're trying to create and develop at Worthington is our engineered ASME tanks.

These engineered tanks have played an important role in commercial buildings across the world for decades. Increasingly, as new chip sets generate significantly more heat, data center designers and operators are embracing liquid cooling. Engineered tanks like ours help manage the cooling fluids used in liquid cooling systems and as such are a critical component of those data centers and the cooling infrastructure. We've been a market leader in these engineered ASME tanks for years. The market we believe has consistently been plus or minus $200 million a year for some time. Given the projected growth in data centers and the increasing adoption of liquid cooling in those data centers, industry sources suggest the market for liquid cooling and thermal management ASME tanks alone could be more than 10 times the size of the legacy market in the next few years. To grow in and with this important end market, we took capabilities we already had, listened closely to our customers, leveraged our engineering and innovation expertise, and created an emerging suite of liquid cooling and thermal management solutions.

As a result, what started as a promising new application for us has quickly developed into an increasingly meaningful growth opportunity. As a reminder, in fiscal '26, we shipped roughly $13 million of ASME tanks for data centers. In the first quarter of fiscal '27, we generated an additional $13 million of revenue from that value stream, essentially matching what we did in the entire prior fiscal year. Near term, we believe that our ASME tank revenues will continue to grow sequentially quarter over quarter through the balance of this fiscal year. In addition, while this market is in the early stages of development, our pipeline suggests that one, our solutions can play a meaningful role in this evolving architecture, and two, the market's growth is continuing to accelerate. To be clear, a pipeline is not revenue, and there was always some uncertainty around the timing and conversion of these opportunities. But the size and the quality of the opportunities in front of us is encouraging.

And we are investing in equipment, engineering talent, and production capacity to support the customers we're sourcing today and the opportunities we see ahead. Solid financial results we're generating and the great opportunities ahead of us are a credit to our people. Hamilton has always believed that people are our most important asset, and that is as true today as it has ever been. As an example, we recently named one of America's most innovative businesses for 2027 by Business Insider. The criteria they used included the number and impact of companies' technological innovations, their reputation among peers for fostering innovation, and how a company's investment in R&D compares to others in their industries. We're also recognized in the quarter by USA Today and Points of Light as well as of America's most charitable companies. This honor reflects our deeply rooted commitment to communities where we live and work, including volunteerism and support from the Worthington Companies Foundation.

Much is being asked of our teams every day as we navigate volatile markets, geopolitical instability, inflation, elevated interest rates, supply constraints, and operational challenges. We're very grateful for the way our colleagues continue to prioritize our customers and one another. We're proud of how we started our fiscal year. There's more work to do, but we continue to see tangible evidence that our strategy is working. We see it in organic growth driven by innovation and productivity gains through transformation, successful M&A integration and ultimately in cash generation. In addition, our end markets, brands, capabilities, and strategy position us exceptionally well to continue driving profitable growth. Most importantly, we have a talented team that cares deeply about each other, our customers, and our company.

Before I turn it over to Colin, who will spend a few more minutes on our financial performance in the quarter, we would like to remind everyone that we will be hosting our Investor Day in New York on November 10th. We're looking forward to discussing our businesses, the opportunities we see for profitable growth, and how we're positioning Worthington Enterprises to create long-term value.

We hope you'll join us. Thank you, Joe, and good morning, everyone. We delivered a strong start to fiscal 2027, 1% organic sales growth, record trailing 12-month free cash flow of $196 million, continued improvement across our trade and specialty solutions businesses, strong performance from our joint ventures, and meaningful progress in several of our strategic growth platforms. GAAP earnings in Q1 were 87 cents per share compared to 70 cents per share in the prior year period. The current quarter included a net benefit of $0.05 per share from non-recurring and restructuring items, primarily related to a gain realized from a contingent earn-out associated with the sale of our former oil and gas business, which was divested in January of 2021. The prior year quarter included $0.08 per share of restructuring and other expenses. Excluding these items in both periods, adjusted earnings were 82 cents per share, up from 78 cents per share in the prior year quarter. Included in adjusted earnings for Q1 was a net pre-tax benefit of approximately $4 million or 6 cents per share related to IEPA tariff refunds.

Consolidated sales increased 13% to $344 million, demonstrating continued momentum across the underlying portfolio in addition to the contribution from our recent acquisitions, which added $19 million in net sales for Q1. Gross profit increased by nearly 11% in the quarter, while gross margin was 26.4% versus 27.1% a year ago, primarily reflecting lower volumes and less favorable mix in Building Performance Solutions where cooling and construction faced a particularly difficult prior year comparison. Adjusted EBITDA was $74 million compared to $67 million in the prior year quarter, while adjusted EBITDA margin was 21.5%. Importantly, even excluding the net tariff refunds, adjusted EBITDA increased year over year, reflecting underlying improvement across several of our businesses. On a trailing 12-month basis, adjusted EBITDA increased to $303 million. Turning to our capital allocation, we remain focused on reinvesting in our businesses and pursuing strategic acquisitions while returning excess cash to shareholders via dividends and share repurchases. Free cash flow remains one of our most important operating metrics, and Q1 demonstrated the strength of our cash generation.

Operating cash flow was $67 million, up from $41 million a year ago, while free cash flow increased to $54 million from $28 million, which is our second strongest quarter since becoming Worthington Enterprises, behind Q4 of fiscal 2026. This level of cash flow provides us with the flexibility to reinvest in our businesses, pursue additional growth opportunities and return capital to shareholders, supporting our ability to create value over time. Capital expenditures total $13 million in the quarter, and we return capital to shareholders through $9 million in dividends and spent $18 million to repurchase 335,000 shares of our common stock. Our joint ventures continue to deliver strong cash generation, providing $36 million in dividends during the quarter, representing 88% of equity income. Turning to our balance sheet and liquidity, we close the quarter with TTM adjusted EBITDA of $303 million and net debt of $250 million.

We continue to maintain a strong balance sheet with significant financial flexibility to execute our strategy. Yesterday, our board of directors declared a quarterly dividend of 20 cents per share payable in December 2026. Before I turn to segment performance, and as a reminder, we recently renamed our two business segments to better reflect the markets they serve, the solutions they provide to customers, and the continued evolution of our portfolio. Building products is now Building Performance Solutions, and consumer products is now Trade and Specialty Solutions. The names have changed the composition of the segments and our historical financial results remain unchanged. In Building Performance Solutions, Q1 net sales grew 16% year over year to $215 million, up from $185 million in the prior year quarter. Acquisitions contributed $19 million of net sales in the quarter, while organic sales increased 6% driven primarily by strength in our water and European businesses, partially offset by lower revenue in our cooling and construction business. Adjusted EBITDA was essentially flat at $60 million compared to the prior year quarter, with an adjusted EBITDA margin of 27.8%.

As Joe mentioned, the year-over-year comparison for Building Performance Solutions was impacted by the normalization of demand in cooling and construction following the A2L refrigerant transition, as well as less favorable product mix. Tight steel availability and extended lead times also created production scheduling and shipment timing challenges during the quarter. We continue to view the A2L impact as a timing and comparison issue rather than a structural change in the business. Importantly, adoption remains strong and continued installation of A2L equipment supports current demand for our product, while also building an installed base that we believe will create an attractive long-term service and replacement opportunity. Our teams have worked diligently and prioritized customer needs throughout this period, while positioning the business to benefit as these temporary headwinds normalize. We are particularly encouraged by the accelerating opportunity in our water business, where demand for engineered ASME tanks supporting liquid cooling applications for data centers continues to grow. As Joe discussed, this is becoming an increasingly meaningful organic growth platform for Worthington.

WAVE delivered another record quarter with equity income increasing approximately $3 million year over year to $35 million. ClarkDietrich also improved with equity income increasing more than $1 million year over year to $7 million despite commercial construction activity outside of data centers remaining relatively soft. We are pleased with the performance of LSI and continue to see attractive opportunities to expand the scale, profitability, and diversification of our Building Performance Solutions platform. In Trade and Specialty Solutions, Q1 net sales grew 8% year-over-year to $129 million, up from $119 million in the prior year quarter, driven by a combination of higher overall volumes and average selling prices. Adjusted EBITDA increased to $24 million from $16 million in the prior year quarter, while adjusted EBITDA margin expanded to 18.6% from 13.6%. The improvement in profitability reflected higher sales, pricing, and improved manufacturing performance, along with the net benefit from IEPA tariff refunds we discussed earlier. Importantly, underlying profitability improved, excluding the tariff benefit, particularly in our tools and portable fuel businesses.

We were pleased with the performance of the segment, which continues to demonstrate the resilience of our portfolio of market-leading brands. Looking ahead, we remain focused on driving profitable organic growth through the Worthington business system, including continued innovation and transformation across the segment, along with opportunities to expand distribution. We've seen good results from 80-20 in our water business, and we're now applying those same principles to portable fuel and torch to simplify the portfolio, improve mix, and drive sustainable margin improvement. Overall, we are encouraged by our start to fiscal 2027. We are driving continued organic growth with innovation and solid execution, improving performance across several of our wholly owned businesses, strong contributions from our joint ventures, and growing and attractive end markets like data centers, all while still GENERATING NEAR RECORD CASH FLOWS. These results provide further evidence that our strategy is working. Looking ahead, we see multiple opportunities to strengthen earnings through continued execution, maturing 80-20, normalization and cooling and construction, growth and higher value applications, continued progress integrating recent acquisitions and continued progress productivity improvements through the Worthington business system.

We believe these initiatives are improving the quality, sustainability, and trajectory of our earnings and cash flows, strengthening our ability to invest for growth and create long-term value for our shareholders. With that, we're happy to take your questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to turn off your audio to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Beros with Thompson Research Group.

Your line is open. Please go ahead.

Hey, good morning, everyone. Thanks for taking my questions today. I want to start with a question about the steel market overall. You mentioned it's tight, lead times extended, not the ideal supply chain setup, but Worthington should be in a position to navigate that better than almost every other competitor you guys. So maybe help us understand kind of where things stand today in the field and kind of what Worthington can do that others can't to navigate that.

Sure, Brian, it's a very topical good question and steel market has absolutely tightened. We are seeing longer lead times and certainly the price of steel has come up in certain areas. You probably, well, it did start last fall, and then 232 tariffs on imported raw steel doubled. That really chilled imports and since then, we've seen the price of steel creep steadily up and the market started to see some lead times get extended. That was certainly the case in Q1. But as you say, tight markets can create challenges, but there are also environments where we think some of our capabilities really do matter. We're a pretty sophisticated buyer of steel.

We have very strong supply chain and we have a broad manufacturing footprint, it gives us additional options to manage through periods of compliance, and the strain supply. So we've been actively managing in that environment by looking across suppliers, products, and our network to be sure that we're serving customers maintain when it's been appropriate. We have taken pricing actions as well, since input costs have increased the way that they did. So, you know, the availability was a headwind for us in Q1, particularly as we mentioned in going in construction and balloon time. I think that we're better positioned going forward certainly through the end of the calendar year. Beyond that, we have limited visibility. It doesn't mean we don't necessarily think that it'll get worse again beyond that, but as I said, we just don't have a lot of great visibility kind of into the new calendar year. We ultimately think about that as it probably cost us, you know, a few million dollars in the quarter. Yes.

Okay, thank you. And follow up I guess would be on the JV WAVE, up 8%. Great to see on a already pretty strong comp anyway. So maybe some more clarity on kind of what the the driving factor for that was if that's data center demand starting to flow through distribution yet? Is that pricing just from steel, or just strong core end markets? And kind of the demand for that would be helpful. Thank you.

Yep, sure, Brian. So WAVE, as you mentioned, another really excellent quarter delivering record equity income of $35 million and we continue to be very pleased with the performance of that business and the team there. The end markets, at WAVE, they remain generally stable, although performance varies by sector. So education, health care, transportation and as you mentioned, data centers continue to remain healthy and in drive volume while channels like retail and office are a little more muted. So WAVE also does benefit from meaningful exposure to repair and remodel activity, which tends to be more resilient than the new commercial construction space. So they're a little insulated there, which is good. The team continues to really innovate around solutions that help contractors reduce labor and improve installation efficiency and that's always going to be valuable in the market and they continue to create meaningful value for their customers that way and that supports the attractive economics of the business. And so, more broadly, WAVE is just a great example of the types of businesses that we like to own. They're a market leader, an attractive niche with strong customer relationships, differentiated products, and the ability to perform very well across different different market environments. As we look into Q2, you know, there is normal seasonality to the business.

Uh She wants a strong quarter for them always during the year. What we would expect as we look into Q2, some sequential moderation, but overall they remain very healthy and we're very confident in the team there. Great, thank you.

Your next question comes from the line of Walter Liptak with Seaport Research. Your line is open. Please go ahead.

Hi, thanks. Good morning, guys, and good quarter. I wanted to ask about um uh the data center product. And it sounds like you hit the targets that you set out to uh to get the $13 million. I wonder if you can talk about just the experience during the quarter, um you know, any, you know, as you're going through any ramp costs or productivity that you're working through. And, you know, as you've been able able to maintain and come out with a new ASME products, are you able to get more visibility beyond kind of what you've talked about in the past, which is getting to kind of that run rate of $13 million in revenue per quarter?

Sure, Walt. Good morning. We're talking here about, you know, ASME tanks and if people aren't sure it's it's that stands for the American Society of Mechanical Engineers, it's a it's a certain code and approval process, but you know these are these are tanks that are used in liquid cooling systems that support next gen computing infrastructure. Their purpose is to build vessels used for liquid cooling and thermal management. And we've actually been in this business for a long time. We've been innovating in pressure and hydronic systems for 80 years. In fact, Amtrol invented the first pre-pressurized, not to get too technical on you, diaphragm. expansion tank seven years ago. So this isn't new to us, but as we listened to customers and understood what they were trying and needed to accomplish, we knew we could be helpful. So we leveraged the core competency, our engineering and innovation expertise, and created this emerging suite of solutions that we think really do help our customers solve problems that they're they're trying to solve.

And so you said it, $13 million last year, $13 million in Q1. I do think that we should grow sequentially in Q2, Q3, and Q4. More of that growth being weighted on the back half of the year, the back part of the year. But keep in mind that this market is still developing, and these opportunities are sometimes 18 to 24 months removed from a quote-unquote announcement that you might hear about a data center being greenlit. We do think that we'll have some variability from quarter to quarter, but this is a multi-year opportunity. We think it's accelerating. And as I mentioned before, we think that the liquid cooling and thermal management market just for data centers, you know could be 10X what the legacy market was in the next few years and so, We absolutely have invested and are continuing to invest in engineering talent, in new equipment and in production capacity as we're really trying to be and believe that we're very well positioned to be part of the solution. And so if you think about the way people describe this market, they talk about hyperscalers, data center builders, and then ultimately, they get into the picks and shovels that make data centers work.

You know, it's oversimplifying, but you can think of our solutions as types of picks and shovels. And so, you know, we make various kinds of tanks and separators, but what really sets us apart is the services that we can provide around these solutions, our engineering expertise, our design expertise. Ultimately helping our customers design or refine their designs for these fluid management solutions. We're good, you know, we get sort of spec'd in, thought about by things like the basis of design, but we like to get spec'd in to some of these designs as as we go forward. And I think we'll be able to grow in and grow with this market pretty nicely.

Okay, thanks for that. Appreciate it. And yeah, good luck with that rapidly expanding market. I wonder if you could talk about, you know, the strategy that you guys are going after. I think you've talked about some capacity expansions. You just mentioned engineering and, you know, and production. I wonder if you can talk about what you're doing there. Uh, sure. So it is it is is it is a pretty.

I think it's a pretty fulsome approach, heavy on, engineering and process. A lot of capacity expansion and investments in our own facilities. But in cases where it makes sense for somebody else to manufacture these, we've got a group of partners that we are relying on and that we are partnering with to help us essentially expand our own capacity and ultimately do the design work, do the commercial work, do all the things that need to happen, but ultimately take advantage of some capacity that's already in the ground.

Okay, great. Okay, thanks. I'll get back in queue. Thank you.

Your next question comes from the line of Susan Maklari with Goldman Sachs. Your line is open. Please go ahead.

Good morning, everyone. My first question is around the broader state of the, good morning, the broader state of the consumer and what you're seeing there. It sounds like from what we're hearing from the homebuilders, things certainly moderated in the quarter as rates rose and the geopolitical environment. Can you just talk a bit about what you're seeing now and what that implies as we think about the growth in the next couple quarters?

Sure. So, you know, within Trade and Specialty, one of the reasons, obviously, that we decided to realign and rename those businesses, as you know, is an awful lot. A lot of our products that were sold through what's historically been consumer end up in the hands of contractors. They're working on commercial buildings or in residential buildings. But for us, it's really around that team continuing to execute exceptionally well. They've got good pricing discipline. They've done a really good job commercially. There's a lot of energy around NPD and new products that we expect kind of to see in the back half of our fiscal year. But, you know, I would say generally, yeah, you're right. Interesting. Rates are still high but people are still repairing remodeling unemployment is still pretty low and we've always used unemployment as a pretty good kind of indicator for us.

And so we haven't seen any material weakness and our customers' point of sale is hanging in there. And so, you know, we think that, our products are awfully resilient and have typically shown that way. And it's not as though the market is worse than it was in the past three years. So it's been relatively steady from that perspective.

Okay. That's helpful. And then can you also give us an update on the integration of the recent acquisitions that you've done? And any comments on the M&A pipeline in general given the operating conditions and the move-in rate?

Yes, so thanks Susan. So I'll take the pipeline question first and we continue to see a healthy pipeline of opportunities you know a slight uptick if anything you know more recently with just activity there which is good uh and And as you know, we're focused on businesses where we see strong strategic and cultural fit. These are in attractive niches and where Worthington has a clear opportunity to create some additional value. And we've got a strong balance sheet. We've got really good free cashflow generation, like we talked about earlier. Low leverage and that creates significant financial flexibility for us to pursue these opportunities when they make sense. Our capital allocation framework is balanced, as you know, with a bias towards growth. And we're actively evaluating opportunities and we feel good about what we're seeing there. Just on the recent acquisition, so we also, we continue to feel pretty good about Our most recent acquisition, both Elgen and LSI. In the quarter, the acquisitions contributed approximately $19 million of sales, uh just in Q1.

With Elgen specifically, we've made good progress on that integration. It's been over a year at this point. focused heavily on the operations and deploying the Worthington business system to really realize the full potential of the business. The commercial HVAC end markets that they serve remain pretty healthy, and we continue to believe Elgen has significant opportunity over time. On LSI, that's our most recent acquisition. We closed in January. It's earlier in the integration process, but we are very pleased with performance there. It's a high quality business, really attractive margins, a strong position in a very specialized niche. There are critical components of the overall kind of metal system, which is an attractive market to be in.

So we're increasingly focused on LSI with how we can deploy Worthington's capabilities to accelerate growth. We think that's the real unlock for LSI and most importantly kind of both of those businesses Elgen and LSI are great cultural fits so people are our most important asset and with the acquisitions where we'd much rather spend our time improving operations expanding commercial opportunities than trying to change the culture and in both cases we feel pretty good about the teams there and the culture.

At those businesses. Yes, and Susan, the only thing I would add comes, when you talk about the increase in rates and the rate environment, you know, that's actually a good thing for us. We, as you know, have a pretty good balance sheet and have a fair amount of liquidity if competitive situations arise for acquisition that are far more borrowing base and our borrowing basis is probably going to be better than a lot of folks that we might be in competition with. So environments like this are actually better for us, relatively speaking, than when interest rates are very, very low and capital is everywhere.

Yes, okay. That's very helpful. Thank you both for the color and good luck with the quarter.

Your next question comes from the line of Walter Liptak with Seaport Research. Your line is open. Please go ahead.

Okay, thanks. I've got a couple of follow-ups. One on the um the free cash flow, as you guys pointed out, was very strong. I wonder if you could talk about uh some of the some of the programs that you guys are doing to improve working capital? And is that sort of a one-time inflow of cash from working capital accounts, or is this going to be a – can you continue to generate high levels of free cash flow?

Yes, so thanks Walt. It's been, this has been an important point for us and we're really pleased with the cash flow generation. As you mentioned, as we talked about earlier, up $26 million year over year from operating IN AND THAT'S THE UNDERESTIMED IN AND THAT'S THE UNDERESTIMED QUESTION. QUESTION. QUESTION. I HAVE SOME THANKS, I HAVE SOME THANKS, I HAVE SOME THANKS, IT'S AN EXCITING, IT'S AN EXCITING, IT'S AN EXCITING, UNDERSTANDING, UNDERSTANDING, UNDERSTANDING, MINIMUM DOLLARS TO FIND MINIMUM DOLLARS TO FIND MINIMUM DOLLARS TO FIND SOME NEW CASH. The working capital measures we've been very intentional about, which has been helping us drive that free cash flow generation, and we believe it is sustainable. We've been working hard with our teams to continue to pull levers to really compound our cash flow and in particular it's showing up as we talked about in our working capital. And so just, you know, from a cash conversion cycle standpoint, just over the last year, I think we're down about eight or nine days, which we're really pleased with, over that period. And then just from a networking capital as a percent of sales, we're down, I think almost 3% just over the last couple of years. And so, that's a lot of incremental things, working around customer terms, working around our supply base, and then just more efficiently and effectively managing inventory.

Things like 80-20 always play a role in that as well. And so, we're really pleased with the performance and do view it as sustainable. As we move forward, you know, we're going to continue to drive that free cash flow generation and, you know, there is some normal kind of cyclicality or seasonality to it. We do have an extra tax payment in Q2, which is normal, of course, but outside of that, uh, we feel pretty good from a free cash flow standpoint.

Okay, all right, thanks for that insight. And then just the last one for me, the A2L tough comparison. You know, we saw that last quarter. You know, it's here again. How you know that inventory correction that's going on, how long do you think it'll take to clear you know, do you expect more, especially in the second quarter going into the end of the calendar year? And at what point do you think we start getting onto a positive comp?

Yes, so Walt, so it is that transition, it did have an impact in the quarter. The unfavorable mix was primarily driven by the pooling construction business and the difficult comparison there related to A2L. Um, just a little more background there, the prior year benefited from this unusually strong demand as manufacturers, distributors, contractors simultaneously established inventory ahead of this regulated transition. And that included kind of heavy demand on our products, obviously. And we estimate the year-over-year impact to adjusted EBITDA this quarter was approximately $7 million, which is more than we anticipated a quarter ago. And Joe mentioned this earlier. Channel inventories are taking a little longer to normalize, and particularly against the the backdrop of the muted housing environment. We expect Q2 to remain a difficult comparison because of that prior year, quarter benefited from the H2L related volumes.

But as we move to the second half of the year, Q3 and Q4 are seasonally stronger in this market, including in construction. So we do expect normalization there. Importantly, we continue to view this primarily as more of a timing and comparison issue rather than a change in the long-term fundamentals of the business. Nearly all the new residential equipment now utilizes A2L refrigerants, and so every new installation expands the installed base for our service business. Products and over time that should create a growing service and repair opportunity for the products that we sell in the space. All right. Thanks very much.

Your next question comes from the line of Brian McNamara with Canaccord Genuity. Your line is open. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. Just one for me as all my other questions have been addressed. Can you characterize or quantify the growth you're seeing in data centers outside of ASME tanks, whether it be WAVE, Elgen, or LSI? And specifically, are you bundling your solutions there to win business, or has it largely been kind of out of the box? All cars to this point.

It's a great question, Brian. Good morning, it's Joe. The way that we think about data centers, we talked a lot about the ASME tanks, but yes, absolutely. Every data center is a commercial building and a number of our value streams provide Building Performance Solutions that are integral to the way those buildings function and setting up to do what they're supposed to do. That certainly includes WAVE and ClarkDietrich. It's Elgen and LSI. Across those value streams, data centers are a very important part of the growth that we're seeing. And I would say our revenues are growing commensurate, maybe a bit better or a bit worse, depending on the application with the proliferation of data centers. Because of the market and data centers operate the way that they do, it's relatively decentralized from a construction and from a guts perspective.

So the bundling would be an overstatement, but we are increasingly collaborating across value streams and talking about opportunities and prioritizing and ultimately kind of making the case that we can refer or otherwise make warm introductions for other pieces of our business that we probably couldn't a couple years ago.

Maybe just a quick follow up on that. I think in Q3 last year you said that your data business, data center business was expected to triple in fiscal '26. Well, it sounds like the ASME tanks are about to quadruple at least if they sequentially grow each quarter this year. How would we, can we at least characterize the other businesses exposed to data centers that you guys own kind of multiplying this year? Is that a fair way to characterize the growth you're seeing there?

So, now your question, Brian, the non-ASME tanks, Yes. Can I ask that again? I just somehow misunderstood it, maybe. Say that again. I think I misunderstood your question. Can you ask it again?

Yes, so I think in Q3, I think you said your data center business overall last year was expected to triple. I don't know where that landed. Are we expecting that kind of same maybe doubling, tripling kind of this year? It sounds like the ASME tanks are going to at least quadruple if you grow sequentially quarter after quarter this year.

Yes, yes, right. So yes, we have $13 million was effectively 3x what it had been the year before. We did that in Q1, which on a run rate, you know, so it would have it being 4x, but we think that, and we said this much, that we're going to grow sequentially. So yes, it's the, we We do absolutely believe that this market is accelerating.

All right, apologize for the confusion, Joe. Thanks for taking the question.

No, no, it's my fault. Thank you.

Your next question comes from the line of Will Gildea with CJS Securities. Your line is open. Please go ahead.

Good morning. Can you add some more color on the really solid growth in trade and specialty solutions? I think you described as volume and price-driven just wondering are there any product lines or customers where you saw more strength in the quarter.

Yes, so thanks Will. So the Trade and Specialty Solution segment, really good performance in the quarter. Sales increased approximately 8% driven by a combination of higher overall volumes and selling prices. We saw some good broad-based growth uh across most of the portfolio, particularly portable propane and tools. Those were driven by higher volumes, expanded distribution, and then both of those segments had some pricing actions as well, which was helpful. The balloon time business was the primary exception, volumes were down, but that was more a function of a really strong prior year comparison. Which impacted in the current quarter. So more broadly really pleased with the performance of the segment and they had good margin expansion even excluding the tariff kind of positive in the quarter as well.

That is very helpful, thank you. And then just one more, you know, I think you described, uh, increasing raw material prices, the headwind of a few million dollars, you know, how quickly can you mitigate that? And how are you thinking about mitigating that? And does that headwind, uh, get worse throughout the to the end of the calendar year uh does it improve.

I'm just making sure I clarify, Will, My comment on a few million dollars was around steel being late and ultimately us needing to prioritize and think about shipments and manufacturing and things like that. We do think that near term we'll be in better shape there. Steel is more expensive. It was a year ago but also as we mentioned that's not ideal but we have taken price actions where we thought we needed to but But these are environments where we ultimately can separate ourselves from others. And so with our relationships and our capabilities and our optionality, it's something that will continue to address. I think we'll address it successfully. With the caveat, obviously, that things are certainly more expensive than they were a year ago from a raw material perspective. And that's true across the board.

All right, thank you very much.

There are no further questions at this time. I will now turn the call back to Joe for any closing remarks.

Big thank you. And thank you all for joining us this morning. Look forward to potentially seeing some of you at our Investor Day in November. Hope you have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone, thank you for joining us and welcome to the Worthington Enterprises' Fourth Quarter Fiscal 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Marcus Rogier, Treasurer and Investor Relations Officer. Marcus, please go ahead.

Thank you, Paige. Good morning, everyone, and thank you for joining us for Worthington Enterprises' Fourth Quarter Fiscal 2026 Earnings Call. On the call today are Joe Hayek, our President and Chief Executive Officer, and Colin Souza, our Chief Financial Officer.

Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information on these risks and uncertainties, please refer to our earnings release issued yesterday after the market close, which is available on the investor relations section of our website.

Additionally, our remarks today will include references to non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures can also be found in the earnings release. Today's call is being recorded and a replay will be available later on our website at worthingtonenterprises.com.

With that, I'll turn the call over to Joe for opening remarks.

Thank you, Marcus, and good morning, everybody, add my welcome to this Worthington Enterprises Fiscal 2026 Fourth Quarter Earnings Call. Fiscal 2026 was an important year for Worthington Enterprises. We delivered 20% sales growth, 9% of that was organic growth and 12% adjusted EBITDA growth. Generated $170 million of free cash flow while successfully reducing SG&A as a percentage of sales by 200 basis points. We acquired and began the integration of both Elgen and LSI. These results demonstrate the strength of our portfolio, our strategy, and most importantly, our people.

We achieved these results while navigating tariffs, global conflicts, supply chain challenges, and continued uncertainty around the health of the U.S. economy. Through it all, our business remained resilient and focused on serving our customers, a reflection of our talented and dedicated teams. To all of my colleagues around the world, thank you. We have much to be proud of and even more to look forward to.

In the quarter, driven by great work across our teams, sales increased by 17% and organic growth was 3%. Net earnings increased to $48 million from $4 million a year ago. Adjusted net earnings were $48 million and adjusted EBITDA was $83.5 million.

Free cash flow was $55 million, our highest quarterly cash flow at Worthington Enterprises, despite elevated capital spending associated with an ongoing facility modernization project. While we were pleased with the quarter, our adjusted EBITDA and margin performance were impacted by two factors, lower earnings from ClarkDietrich compared with a strong prior year quarter and margin pressure in our cooling and construction business which Colin will spend a few minutes on later. All of our other wholly owned value streams saw year-over-year growth in adjusted EBITDA during the quarter.

Additionally, we believe the dynamics that created those headwinds for our cooling and construction business are more a timing issue than anything systemic. Our results reflect continued execution around the core pillars of our strategy, optimizing and growing Worthington as we deliver value to customers and leveraging the Worthington business system and its three growth drivers: innovation, transformation and acquisitions. Innovation remains the key driver of our organic growth strategy.

Last quarter, we discussed our ASME water tanks used for liquid cooling and data centers, and momentum there continues to build. That business is a great example of how an innovation mindset creates entirely new opportunities for us. We shipped approximately 13 million of ASME tanks for data centers during fiscal 2026. We currently expect to ship at least that much in the first quarter of fiscal 2027.

Demand continues to grow, and we're investing in additional equipment and capacity to support the opportunities we see ahead. Because we leaned in from an engineering, innovation, and solutions development perspective, what began as a promising opportunity is increasingly becoming a growth platform for us. We innovate in emerging end markets to create opportunities for growth, but we also drive innovation into more mature markets where growth can be harder to achieve.

A great example is Balloon Time. The Balloon Time Mini continues to drive momentum in our celebrations business. We recently secured new placement in a majority of Walmart stores for that product, as consumer adoption continues to grow. During fiscal 2026, our teams continued to focus on productivity improvements across our network through transformation. These efficiency gains driven by automation and AI-enabled technologies continue to help us drive growth and operating leverage and contributed to our 150 basis points reduction in SG&A as a percentage of sales in the quarter. The success we're having with 80/20 in our water business has led us to launch a similar initiative in our camping gas and torch business, and we're excited about the impact 80/20 can have on those value streams.

Our acquisitions of Elgen and LSI are excellent examples of the type of strategic M&A we prioritize. Integration of both businesses is on track, and we feel very good about their growth prospects and the expanded capabilities they provide us. Together, they strengthen our position across the building envelope and allow us to offer increasingly comprehensive solutions to our customers.

Worthington was founded in Columbus, Ohio, more than 70 years ago. We've always believed that people are our most important asset. We were grateful in Q4 to be named the top workplace in Central Ohio for the 14th consecutive year, our second year as Worthington Enterprises. We were also recognized as one of America's most charitable companies and one of America's most patriotic companies, honors that reflect our commitment to our communities and to our people. We're particularly proud of those and that recognition this year as we celebrate America 250.

Several of our market-leading brands are also celebrating significant milestones this year, a testament to the resilience, innovation, and enduring relevance that defines our portfolio. Balloon Time is celebrating 40 years. Amtrol, 80 years. And BernzOmatic, 150 years. As we enter fiscal 2027, we're operating from a position of strength. We have leading brands, attractive end markets, a strong balance sheet, significant free cash flow generation, and multiple avenues for growth.

Most importantly, we have a talented team executing a proven strategy. We're thinking about the opportunities ahead, and we remain focused on creating long-term value for our shareholders.

I will now turn it over to Colin, who will take you through some additional details related to our financial performance in the quarter.

Thank you, Joe, and good morning, everyone. Fiscal 2026 was our strongest year yet as Worthington Enterprises. We delivered another year of increased adjusted EBITDA and adjusted EPS, outstanding free cash flow conversion, meaningful margin expansion across our wholly owned businesses, and continued progress executing our growth strategy. While headwinds at ClarkDietrich and in our cooling and construction business caused fourth quarter results to decline modestly compared to last year's exceptionally strong Q4, the underlying earnings power of the company continues to strengthen.

We delivered solid financial results in Q4 to finish fiscal 2026, reporting GAAP earnings of $0.97 per share compared to $0.08 per share in the prior year quarter. Excluding restructuring and other nonrecurring items in both periods, adjusted earnings were $0.97 per share compared to $1.06 per share in the prior year quarter. On a full year basis, we delivered GAAP earnings of $3.14 per share compared to $1.92 per share in the prior year. Excluding restructuring and other nonrecurring items in both periods, adjusted earnings for fiscal 2026 increased 9% to $3.37 per share compared to $3.09 per share in the prior year.

Consolidated net sales for the quarter were $371 million, up 17% compared to $318 million in the prior year quarter. The increase was largely driven by recent acquisitions, which contributed $44 million in net sales for Q4, while organic growth was 3% year over year. For the full year, net sales were $1.4 billion, an increase of 20%, including 9% organic growth, while adjusted EBITDA increased 12% to $296 million. Gross profit increased to $102 million compared to $93 million in the prior year quarter, reflecting the impact of higher net sales.

Gross margin was 27.4% compared to 29.3% a year ago, reflecting less favorable product mix within building products, the purchase accounting impact of the inventory step up at LSI, and inflationary cost pressures. We have implemented pricing actions and continue to execute other mitigation initiatives across the company to offset those cost increases. Adjusted EBITDA was $83.5 million compared to $85.1 million in the prior year quarter, while adjusted EBITDA margin was 22.5%.

The year-over-year comparison was impacted by lower equity income contributions from ClarkDietrich, which were down $7 million, and a particularly strong prior year comparison in our cooling and construction business.

Turning to our cash flow and capital allocation, we remain focused on reinvesting in our business and pursuing strategic acquisitions while returning excess cash to shareholders via dividend and share repurchases. Capital expenditures totaled $16 million in the quarter, including $7 million related to our facility modernization project and consumer products. We returned capital to shareholders through $9 million in dividends and spent $18 million to repurchase 350,000 shares of our common stock.

Our joint ventures continue to deliver strong cash generation, providing $35 million in dividends during the quarter, representing 90% of equity income. Operating cash flow was $72 million in the quarter compared to $62 million in the prior year period, while free cash flow increased to $55 million from $49 million. I want to spend another minute on free cash flow.

Free cash flow remains one of our most important operating metrics. We manage the business with a deliberate focus on converting earnings into cash. That discipline was evident again this quarter as we delivered our strongest quarter of cash generation since becoming Worthington Enterprises. This performance reflects intentional efforts across our organization to optimize working capital, strengthen our balance sheet, and improve cash conversion.

For fiscal 2026, free cash flow totaled $170 million, representing a 102% conversion rate relative to adjusted net earnings. Importantly, we achieved this result while funding elevated capital investments associated with our modernization projects, which totaled $25 million during the year. We also received $30 million less in dividend distributions from ClarkDietrich compared to the prior year.

We have approximately $16 million of modernization spend remaining and expect to complete the project by the middle of fiscal 2027. Thereafter, capital expenditure should return to more normalized levels, supporting continued strong cash flow generation going forward.

Turning to our balance sheet and liquidity, we closed the quarter with net debt of $278 million, resulting in a net debt-to-trailing adjusted EBITDA ratio of less than 1x. Our leverage remains conservative, and we maintain ample liquidity with a $500 million undrawn revolving credit facility at fiscal year-end, providing us significant financial flexibility to pursue both organic and acquisition-driven growth opportunities. Yesterday our board of directors declared a quarterly dividend of $0.20 per share, an increase of 5% from the prior quarter, payable in September 2026. Our demonstrated ability to consistently deliver strong free cash flow allows us to execute on our capital allocation priorities. Let me now turn to our segment performance.

Building Products Q4 net sales grew 28% year-over-year to $245 million, up from $192 million in the prior year quarter. Growth was primarily driven by acquisitions, which contributed $44 million in net sales in the quarter. Excluding acquisitions, net sales increased 5% year-over-year on higher overall volumes. Adjusted EBITDA for the quarter was $69 million compared to $71 million in the prior year quarter with an adjusted EBITDA margin of 27.9%. The slight decrease was primarily driven by lower equity income contributions and a less favorable mix in our wholly owned businesses. Specifically, ClarkDietrich's contributions were down approximately $7 million compared to Q4 last year, while the less favorable mix was largely driven by particularly strong demand in certain cooling-related products in the prior year.

Let me spend a moment on the Cooling and Construction business. The year-over-year comparison reflects a normalization following elevated demand associated with the industry's transition to A2L refrigerants in the prior year. While that created a difficult comparison in the current quarter, adoption of A2L products remains strong, and we feel good about the long-term outlook for the business and don't see this quarter's comparison as a structural change. Additionally, as new AC units and replacement units enter service, they will utilize A2L refrigerants, supporting new sales and an attractive service and repair opportunity in the future.

In fiscal 2026, Building Products adjusted EBITDA increased approximately $27 million or 13% to $240 million despite a $19 million decline in equity earnings from ClarkDietrich. The growing contribution from our wholly owned businesses combined with our recent acquisition continues to improve the resilience and diversification of our earnings profile and positions us well as ClarkDietrich's end markets recover and ultimately return to historical norms. Within our wholly owned businesses, adjusted EBITDA increased 62% to $100 million during fiscal 2026, while adjusted EBITDA margin expanded 220 basis points to 11.7%. We are particularly pleased with the early performance of our most recent acquisition, LSI, and continue to make good progress on integration initiatives at both LSI and Elgen.

We are also continuing to leverage the Worthington Business System of Innovation, Transformation, and Acquisitions to create meaningful opportunities to accelerate growth across our Building Products platform over time. In Consumer Products, Q4 net sales were $126 million, essentially flat compared to the prior year quarter as higher average selling prices offset lower overall volumes. Adjusted EBITDA was $24 million and EBITDA margins were 19.2%, up from $21 million and 16.6% in Q4 last year. The improvement was driven by gross margin expansion and lower SG&A expenses.

The quarter is a testament to the team's ability to bring innovative products to market while continuing to improve profitability through disciplined execution and margin-focused initiatives. For fiscal 2026, Consumer Products net sales increased 4% to $520 million, while adjusted EBITDA increased 10% to $91 million, with adjusted EBITDA margin expanding approximately 100 basis points to 17.5%. The Consumer Products team achieved these results while navigating tariffs and supply chain uncertainty throughout the year.

With a solid foundation in place and a growing funnel of future new products, we believe consumer products is well positioned to drive growth and build on its momentum as market conditions improve. Well, there are two discrete factors affecting the quarter. Lower ClarkDietrich contributions and an unusually strong prior year comparison associated with A2L-related demand in the cooling and construction business, we believe the trajectory of the business is very healthy. Both organic growth and cash generation are solid.

As we enter fiscal 2027, we believe Worthington Enterprises is increasingly differentiated by four key attributes: a portfolio of market leading brands; expanding margins within our wholly owned operations; substantial free cash flow generation and a balance sheet that provides significant flexibility for future growth investments Each of those attributes is stronger today than it was just a year ago, reflecting the continued evolution of the company and a business mix that is generating higher margins, improved cash flow, and greater earnings diversification. We believe those attributes position us exceptionally well to continue creating long-term shareholder value regardless of market conditions.

At this point, we're happy to take any questions.

[Operator Instructions] Your first question comes from the line of Will Gildea with CJS Securities.

So in Building Products for the first three quarters of fiscal year '26, strong mid-teens organic growth slowed to a still healthy 5% in Q4. You talked about the tough comp from A2L sales in the quarter. Are we lapping those comps for the next three quarters? Just any more color on that dynamic would be helpful.

Yes, Will, good question. Just on Building Products, really good, good, improvement, and we're really pleased overall on the wholly owned side, expanding margins 220 basis points. Just on the comparison really getting to the A2L question that is the largest component of the mix comparison relating to kind of this quarter. And as we discussed previously, the prior year quarter benefited from particularly strong demand as that -- the industry went through the A2L transition. And this impacted manufacturers, distributors, contractors. They all had to navigate this transition around A2L and build inventory. And that level of demand did not repeat in the current year quarter creating the difficult comparison this quarter.

From an EBITDA standpoint, we would estimate that the impact was approximately $5 million relative to the prior year quarter. But importantly, this was primarily a comparison issue rather than a change in the underlying health of the business. So we feel good about the broader profitability trends within cooling and construction. And then just on the market, again, nearly all new residential equipment is now A2L, meaning every new installation grows the installed base for A2L. So over time that installed base should support an increasing service and repair opportunity that doesn't really exist meaningfully today.

And demand for Refrigerant Solutions remained healthy, and we view the results kind of this quarter primarily as a timing issue, Will, associated with that transition. And from a comparison standpoint, those effects could continue over the next couple of quarters as the inventory associated with the A2L transition continues to normalize. And although the magnitude of those headwinds should moderate by Q2. So hopefully that helps with just the comparison and moving forward.

And Will, it's Joe. The only thing I'd add is that all of the other value streams in Building Products, ex the JVs and the value streams in consumer were actually up and showed growth in EBITDA relative to Q4 last year, which was a pretty strong quarter.

That is super helpful. I just wanted to switch to the JVs. WAVE continues to perform well. The guidance from Armstrong was healthy. Looking at ClarkDietrich, we're kind of back to pre-COVID levels. Can you talk about your level of confidence that the business is stabilizing or perhaps returning to growth in fiscal year 27?

Sure. And you're spot on. ClarkDietrich is a great business. They're a market leader. They're operating in a challenging environment. Now all that said, they're very strong in data centers, which is helping with volumes, although that's a little bit lower profitability than some of their other value streams and end markets might be. $22 million in equity earnings for the fiscal year. As Colin mentioned, is down about $19 million from the prior year. We're pretty confident that's a trough for the business, and we see a bit of upside there with limited downside, assuming market conditions stay the way that they are, which is to say we're challenged.

ClarkDietrich is very well run. They continue to gain operational efficiencies, and then they're really well positioned to benefit and to grow when end market conditions improve, which we certainly think will happen. We can't predict exactly when, but we know they will.

Your next question comes from the line of Brian Biros with Thompson Research Group.

On the Building Products, the wholly owned saw good margin growth for the year, down in the quarter, as you mentioned, on mix and stuff, but still solid performance for the year. I think you said long term, the margin target for that is maybe 12% to 13%. So you're kind of just below that threshold. It rounds up to 12% I guess. How do we think about that long-term margin target, which seems now achievable over the next few quarters?

Yes, thanks Brian. Thanks for the question. The wholly owned Building Products business has improved significantly, as you mentioned. We're really pleased with performance over the course of the year. And this is where we've been layering on incremental acquisition. So we mentioned it earlier, but the wholly owned Building Products business EBITDA increased 62% this year, $38 million, if you exclude the joint ventures, to $100 million.

And even more impressive is the margin expansion, up 220 basis points in the fiscal year compared to last fiscal year. So we still feel pretty good about the -- our targets there are operating consistently in a low teens kind of EBITDA margin. And we think we got a good chance to get there over the coming years and stay there. And then we'll evaluate and go higher from there.

Got it. And then a follow-up, I guess you added a new Board member yesterday, Brad Southern, formerly of Louisiana Pacific, Great addition in our view. We have a lot of respect for the Louisiana Pacific team. I guess I'm curious on that background of a residential building product and siding and OSB, mostly R&R focused, homebuilder, contract-driven products, how you can leverage that at the Board level for Worthington? So just any thoughts on that addition would be appreciated. Thank you.

Sure. So I would first say we have a terrific Board of Directors. It's been that way for a long time, and it's gotten even better and more focused as we have grown into our shoes as Worthington Enterprises. Brad is a fantastic addition. As you mentioned, he was the Chair and CEO of Louisiana Pacific. He's got great and deep kind of operating experience. He's a real culture guy. He's incredibly smart and strategic and thoughtful. And we think there are lots of ways that he will benefit both our Board and the company.

And so, it wasn't one thing specifically, Brian, but the opportunity to add somebody like him, having just retired from being a sitting CEO several months ago was really something that we were excited about, and we're very grateful that he was willing to spend time with us and join the Board.

So yes, we're pretty excited about that, what that will mean for us. And he fits in really well with you know the rest of our Board, which is populated with very strategic, very experienced and dedicated folks. So we're very lucky with respect to our Board, and we think it got better yesterday.

Your next question comes from the line of Susan Maklari with Goldman Sachs.

My first question is turning to the consumer product side. You mentioned that you're seeing some continued nice momentum with Balloon Time Mini. Can you just talk about how these new products and the innovation are driving some of the revenue streams in that part of the business? And then I guess also within that, when you think about this macro and obviously, the increased uncertainty and the inflation, how do you think that, that will drive benefits for you, just given your exposure to some of these smaller type of consumer products?

Sure. So that's a really good question. And Susan, consumer products for us is actually a mix of products, right, that are used by contractors or by DIYers and consumers. We segment the businesses more based on where people buy those tools and products by what they are. And so many of our value streams in consumer are geared towards contractors and pros. In those value streams, demand has tended to look a little more like what we're seeing in building products, which is pretty stable conditions with some growth.

And then our more traditional consumer categories. A lot of those products are used to elevate experiences, and they come at a relatively low cost or they serve as an alternative to more expensive options that people have. And so as a result, demand has been and continues to be pretty resilient, certainly more so than you might see across a broader consumer discretionary spending metric. We certainly saw that again in the quarter, in the fiscal year.

I mean, keep in mind that tariffs were in place all year, but the consumer products team delivered, I think, 4% sales growth and 10% EBITDA growth for the full year in what a lot of people would probably consider to be a mixed environment. And I think the nature of the -- just your question is that's really because of innovation. And innovation is how we drive organic growth and margins in newer end markets, as we talked about on the ASME data center side, but also in more established mature markets like Balloon Time and the Balloon Time Mini.

And I would also suggest so that innovation is really what sets us apart. And we're seeing pretty stable growth in a lot of those consumer markets in the face of these tariffs and supply chain uncertainties. And it's really because of innovation. And we're really excited about the pipeline of new products that we've got that are scheduled to launch and hit the market later in our fiscal year 2027. There's been a lot of great work done by our teams.

And I think our customers and their customers really appreciate how we're elevating the experiences that these products enable. And just kind of as importantly to us, that team continues to develop expertise in muscle memory around NPD and product launches, and they're having successes. So we think that goes really well for this year, but beyond as well when we think about innovation, because that really is the core driver for us of organic growth.

Okay, that's great color, Joe. And then turning to the price cost side, I think you mentioned in your prepared remarks that you have implemented pricing across the business. Can you just talk a bit more about that pricing and how we should think about it relative to the inflation that you are anticipating coming through the business?

Sure. Yes, thanks Susan. So I did mention, we experienced some inflationary pressures across a number of areas and these were in the commodities like steel, aluminum, brass, and then freight and diesel, among other inputs. They're not isolated. Those pressures were not isolated to any single business or product category. It did vary throughout the portfolio. But as we've discussed, we have implemented pricing actions. Some of those were announced broadly. Some of them are more adjustments to existing contracts or adjustments to contracts, or we'll reprice when we've won some new business or new contracts. But overall, we have a disciplined price risk capability, and we're always looking to manage a balanced position on the supply and demand side.

And so as new volume comes up, right, or new customer awards on the commercial end, we're factoring those higher input costs in and increasing our margin certainty and reducing margin volatility. So we don't really sell products that are a spread above a base price or anything like that. We're selling products that provide solutions. And so we don't expect some of the material cost inputs to really whip around our margins. And that's really the discipline around the price risk and the strong portfolio products that we have. So nothing that -- we feel good about the actions we've taken on some of these pressures moving forward.

Yes, and Susan, the only thing I'd add is, because I'm sure you're seeing this and talking about it with people, is the steel market. The market is tight. Lead times are extended at a lot of the mills, prices have moved up. That creates markets, where we actually really sort of shine. Our purchasing and supply chain capabilities. And those teams are really, really good at what they do. And so it creates a competitive advantage for us. It's certainly a bit more difficult to deal with than if the world was awash in cheap steel. But for us, it creates opportunities to set ourselves apart and to take share because we're able to do what we do very well on the procurement and on the raw material side.

[Operator Instructions] Your next question comes from the line of Brian McNamara with Canaccord Genuity.

This is Madison Callinan on for Brian. Can you give any additional color on the total opportunity in dollars in data centers and which of your businesses, whether it be LSI, Elgen, WAVE, or what has the most upside in data centers?

Sure. So, Madison, great question. We really think about data center and opportunities there in a couple of ways. Data centers are commercial buildings. And so a lot of our businesses naturally participate. In that activity. That includes WAVE, that includes ClarkDietrich, that includes Elgen, that includes LSI, and that includes portions of our water business. All of those value streams provide solutions and products to support construction and the operation of those data centers. And so it is absolutely an important area of growth.

And I would tell you that we continue to see additional opportunities. More sort of specifically to our water business, the ASME water tanks that we manufacture are increasingly becoming a critical component of the liquid cooling systems that are being deployed to support the next-gen computing infrastructure. And that's a separate opportunity from a building itself and one that's really grown rapidly for us just in the last several quarters. We mentioned earlier, we shipped 13 million into data centers on the ASME side in '26. We'll ship at least that much in Q1 of '27. But if you take a step back, it can be up to two years between the announcement of a data center and when you'd see liquid cooling units installed.

So there's a real lag from when you would see something in the media as to when the revenue opportunity for us might materialize. And the other thing to keep in mind is that the market is only very recently started transitioning from air-cooled data centers to liquid cooling. So this truly is an emerging end market. And we view this as a multi-year growth opportunity, and we're really excited. It's hard to put a finger on how high is up for us in this market, but we've actually been pretty thoughtful in our approach.

We are investing. I mentioned that earlier. We're making many of these tanks, but we've also cultivated a network of partners who have real competencies in manufacturing certain tank sizes and configurations. So in those situations, we'll provide the engineering expertise, and we'll partner with them on the manufacturing side. And we believe thinking about it this way kind of keeps our overall capital investment low relative to the revenue and profitability opportunity the market presents. We absolutely think that the business can and will grow significantly from current levels if we're successful, and we execute. But we really think that we're in a great position to become one of the default solution providers to a host of integrators when it comes to liquid cooling, which is going to grow rapidly in the coming quarters and years.

Our teams have really come from answering the question, can you build this to more really participating in the design phase of these projects and then guiding our customers to designs that are innovative and effective, but they're also scalable. And to take it back to the other value streams there, we're involved in data centers in a lot of different areas. And so we think we have a real opportunity to cross-sell and introduce other product lines and value streams into the ecosystem.

The slightly tricky part about the other businesses is because a lot of times those products move through distribution or through contractor channels, which are the ultimate end use isn't always visible to us. And so it's harder to quantify total data center across the portfolio. All that being said, it's a very significant market. It's probably for a lot of our value streams, small but growing rapidly, and we think there's a lot to go.

Great. That's very helpful. And then the stock is indicating down today and would be down a couple of quarters in a row on earnings if this holds. What's the market missing? And what do you think you're not getting enough credit for?

Well, that's a really good question. I think that we're still a little new as Worthington Enterprises. And I know that we probably aren't the easiest, most plain vanilla company to model. But when we have conversations and when people, I think, understand the story, understand really the true potential earnings power of the business, they tend to kind of understand it, and we have different conversations. Yes, I don't certainly want to comment on stock price moves or anything else other than to say that when we think about our fiscal 2026, we think about it as a really strong year and a year that sets the table for even kind of more growth ahead.

We say this all the time internally, that we have a lot to be proud of. But if you think about the innovation engine that we have, you think about the ability that we have to continue driving growth through strategic acquisitions, you think about one of the things that Colin talked about is our real, increasingly important and powerful cash flow generation engine. That's going to set us up really well to be able to take advantage of the growth opportunities that we see. And as markets recover, we're really well positioned.

There are no further questions at this time. I will now turn the call back to Joe for closing remarks.

Thank you. And thanks, everybody, for joining us this morning. I certainly look forward to being with everybody again soon. Have a wonderful 4th of July and celebrate with people that you love and have a great time and be safe. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and welcome to the Worthington Enterprises Third Quarter Fiscal 2026 Earnings Conference Call. All participants will be able to listen only until the question-and-answer session of the call. This conference is being recorded at the request of Worthington Enterprises. If anyone objects, you may disconnect at this time.

I'd now like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.

Thank you, Regina. Good morning, everyone, and thank you for joining us for Worthington Enterprises Third Quarter Fiscal 2026 Earnings Call. On the call today are Joe Hayek, our President and Chief Executive Officer; and Colin Souza, our Chief Financial Officer.

Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information on these risks and uncertainties, please refer to our earnings release issued yesterday after the market closed, which is available on the Investor Relations section of our website.

Additionally, our remarks today will include references to non-GAAP financial measures. Reconciliations of these financial measures to the most directly comparable GAAP measures can also be found in the earnings release. Today's call is being recorded, and a replay will be available later on our website at worthingtonenterprises.com.

With that, I'll turn the call over to Joe for opening remarks.

Thank you, Marcus. Good morning, everybody. Welcome to Worthington Enterprises Fiscal 2026 Third Quarter Earnings Call. We performed very well in Q3 and generated strong earnings growth which is a reflection of the tremendous effort that our team exhibits every day. Our colleagues all over the world continue putting our customers first in our solutions and approach are resonate, helping us to grow.

In Q3, in market conditions that continue to be mixed, we delivered strong year-over-year growth in revenue, adjusted EBITDA and earnings per share. Revenue in Q3 was up over 24% from last year while our SG&A expenditures declined by 70 basis points as a percentage of sales. Our adjusted EBITDA grew by 15% year-over-year. And in the last 12 months, our adjusted EBITDA is now $297 million, up $54 million from a year ago, and adjusted EBITDA margin was 22.4%.

This growth is driven by our teams as they optimize and grow our business by developing and launching new products, expanding production capacity in key value streams, driving excellent customer service and for strategic acquisitions. We believe we are very well positioned to capitalize on our strengths and continue to grow our market share as the markets improve.

Q3 is a great example of how we leverage the Worthington Business System and how it shows up in our financial performance. As we grow our top line and profitability, we're leveraging the WPS and its 3 growth drivers, innovation, transformation and M&A to maximize both our near and long-term success. Innovation is a big part of our growth strategy.

Our ASME water tanks used politic cooling and data centers are a great example, and our pipeline is rapidly growing as data centers increasingly utilize liquid cooling solutions. In addition, innovation and new products have led to new store placements for Balloon Time, driving growth in our consumer business.

Transformation has been a cornerstone of our operating strategy for some time. As new technologies emerge and we conceptualize and implement new tools that help transform our business, we're always focused not on how we did things yesterday, but on how we can do them better or more efficiently tomorrow. Our 80/20 initiative is a good example of that thinking, and we're very happy with our progress to date and excited about how we can continue to leverage that discipline.

AI is now embedded across many of our applications, and our focus to shift from experimentation to operational impact, deploying AI in specific workloads where it can drive measurable efficiencies, not just individual productivity gains We also continue investing in automation, as we gain efficiencies and create elevated opportunities for our comments.

We're focused on acquiring companies in niche markets with sustainable competitive advantages. And in January, we completed our acquisition of LSI. LSI is a leading U.S. manufacturer of standing seam metal roofing clips, components and retrofit systems that enhances our position in engineered building systems. LSI's products are engineered into OEM )certified route systems creating meaningful requalification requirements and high switching costs. We're very happy the LSI team is now part of Worthington. Our integration efforts are off to a good start, and we're excited about the growth prospects that we have together.

At the core of the WPS and at the core of Worthington is our culture and our philosophy. Our company was founded and grew up in breaking the notion that people are our most important asset. Today, as visible as ever, our people power our success. Part of our opportunity and our obligation as the U.S. manufacturer is to invest in and develop the workforce in the future. This year, we launched our largest career accelerator program to date. For high school seniors spend 10 weeks developing career readiness on the shop floor and in the classroom. And these young men and women completed the program, so have we certified manufacturing associate credential and a full-time job offer from us.

Our teams do not seek recognition for its own sake, but it is gratifying when we are recognized by others. For instance, Newsweek recently named us one of America's greatest workplaces for culture, belonging and community for 2026. We're also named one of the world's most productive companies by LNS Research. While these awards do not independently drive our success, they reflect a group of talented individuals and teams doing things well in the right way. Teams like that are the time you build around and that makes you proud to come to work every day.

Global events seem to be unfolding daily, and consequently, economic growth forecast for cloud. And we believe our value propositions continue to improve and to resonate with our customers. The demand in our end markets is steady and will grow as market conditions improve.

Our strategies are solid, and we're executing well. As we approach the end of our fiscal year, we believe we're very well positioned to continue growing Worthington Enterprises and creating meaningful value for all of our stakeholders.

I will now turn it over to Colin, who will take you through some details related to our financial performance in the quarter.

Thank you, Joe, and good morning, everyone. We delivered strong financial results in Q3, recording GAAP earnings of $0.92 per share compared to $0.79 per share in the prior year period. The current quarter included $0.06 per share of restructuring and other nonrecurring items, primarily related to acquisition costs and the noncash amortization of a portion of the inventory step-up associated with our recent acquisition of LSI.

The prior year quarter included $0.12 per share of restructuring and other expenses. Excluding these items in both periods, adjusted earnings were $0.98 per share, up from $0.91 in the prior year quarter and marking our sixth consecutive quarter of year-over-year growth in adjusted EPS and adjusted EBITDA.

Consolidated net sales for the quarter were $379 million, up 24% compared to $305 million in the prior year quarter. The increase was driven by higher overall volumes in both building and consumer products, combined with the impact of recent acquisitions, which contributed $32 million in net sales for Q3. Excluding the impact of acquisitions, net sales increased $42 million or 14% over the prior year quarter.

Gross profit increased to $109 million from $89 million in the prior year quarter. Gross margin was 28.9% compared to 29.3% a year ago, with a modest contraction, primarily reflecting the purchase accounting impact of the inventory step-up at LSI.

Adjusted EBITDA increased to $85 million from $74 million in the prior year quarter, with an adjusted EBITDA margin of 22.3%. On a trailing 12-month basis, adjusted EBITDA increased $54 million or 22% to $297 million compared to $243 million in the prior year TTM period. This performance reflects the strength of our differentiated portfolio and the positive impact of the Worthington Business System supporting improved operating discipline and sustainable earnings growth, both organically and through acquisitions.

Turning to our cash flow and capital allocation. Our focus remains funding growth through acquisitions and reinvesting in our business while returning excess cash to shareholders via dividends and share repurchases.

Capital expenditures totaled $14 million in the quarter, including $4 million related to our facility modernization project in consumer products.

We returned capital to shareholders through $9 million in dividends and the repurchase of 100,000 shares of our common stock. Our joint ventures continue to deliver strong cash generation, providing $35 million in dividends during the quarter, representing 113% of equity income.

Operating cash flow was $62 million in the quarter, and free cash flow was $48 million. On a trailing 12-month basis, free cash flow is now $164 million, representing a 95% free cash flow conversion rate relative to adjusted net earnings. Our free cash flow reflects elevated capital expenditures associated with our facility modernization projects, which totaled roughly $27 million over the TTM period. We have roughly $25 million of modernization spend remaining. The modernization project is on track and on budget, and we expect to complete it by mid-fiscal year 2027. After this investment is complete, capital expenditures should return to more normalized levels, supporting continued healthy free cash flow conversion over time.

Turning to our balance sheet and liquidity. We closed the quarter with net debt of $306 million, resulting in a net debt to trailing adjusted EBITDA ratio of approximately 1x.

Our leverage remains conservative, and we maintain ample liquidity with $495 million of availability under our revolving credit facility at quarter end, providing significant financial flexibility. Yesterday, our Board of Directors declared a quarterly dividend of $0.19 per share payable in June 2026.

Let me now turn to our segment performance. Building Products delivered another solid quarter, reflecting the quality of our business and the efforts of our teams. We are pleased to close the LSI acquisition in mid-January, expanding our offering in the building envelope and are excited to welcome LSI's team to Worthington.

Q3 net sales grew 36% year-over-year to $224 million, up from $165 million in the prior year quarter. Growth was driven by higher overall volumes and contributions from acquisitions, which contributed $32 million in net sales. Excluding acquisitions, net sales increased 16% year-over-year reflecting strong organic growth across multiple value streams, in particular, our water and cooling construction businesses.

Adjusted EBITDA for the quarter was $59 million compared to $53 million in the prior year quarter, with an adjusted EBITDA margin of 26.3%. The $6 million increase was driven by improved performance in our wholly owned businesses, including approximately $5 million from recent acquisitions, partially offset by lower combined equity earnings from our joint ventures.

WAVE continues to perform well, delivering year-over-year growth and contributing $27 million in equity earnings, while Part D trick results were lower year-over-year in a challenging nonresidential construction environment. ClarkDietrich contributed $6 million compared to $9 million last year and improved modestly sequentially from Q2. Our integration plans for LGEN and LSI are on track, and the Building Products team remains well positioned to continue to deliver value as we move forward.

Consumer Products achieved strong sales and earnings growth in the quarter, driven by the strength of our brands, disciplined execution and continued demand across key categories. Net sales in Q3 were $155 million, up 11% over the prior year quarter, driven by improved volumes and higher average selling prices. The [indiscernible] continues to perform well, showing its agility with expanded retail placement paired with innovations like the Balloon Time Mini.

Adjusted EBITDA margin increased -- sorry, adjusted EBITDA increased to $35 million from $29 million in Q3 a year ago, with margins expanding to 22.9% from 20.5%. The consumer team is poised to continue delivering value-added solutions that strengthen our customer relationships and position the business for sustainable growth moving forward.

We delivered strong financial results in Q3. Our differentiated product solutions and disciplined execution, leveraging the Worthington Business System are driving stronger operations, solid cash flow and returns and resilient earnings growth, both organically and through acquisitions.

At this point, we're happy to take any questions.

[Operator Instructions] Our first question will come from the line Dan More with CJS Securities.

This is Will on for Dan. 14% -- more than 14% organic revenue growth in the quarter, very strong. Can you talk about volume versus price? Was price much of a factor for either building products or consumer products?

Yes. Good question, Will. So we're very pleased on the organic growth rate overall, 14% organic, which you mentioned, Building Products was up 16%. And organically, that's the second quarter in a row, Building Products up 16% organically. Consumer was up 11%. It was a mix of different factors there across the different value streams. Volume played a key role. Pricing played as well there. But overall, we continue to think about where we're heading organically in terms of the margins. We're trying to get to 30%, and we've been in the high 20s over the past couple of quarters. We continue to try to make progress toward that 30% gross margin range. And then just as important is making sure we control our SG&A and getting that below 20% as a percent of sales. So a number of value streams were up from a volume and then some were up from a pricing standpoint. I talked about in Consumer Products, just volume and higher average selling prices. So the pricing factor was there more than others.

Yes. And Will, it's Joe. The only thing I would add is that volumes are definitely increasing at the same -- and as Colin mentioned, there are some pricing guidance in there as well. What sometimes gets lost is the benefits from the new products and NPD that we're seeing in the organic growth side. We talked about Balloon Time. Their store count is up 64% from a year ago. They're in 55,000 stores. That's driving a lot of growth. And then we talked about the SME in data centers. That's just not us raising price. We're having more volume of the same thing. That's having new products that are available to either defend our existing businesses to increase the moat around our businesses or candidly to appeal to new customers and we're having success with all 3, which makes us pretty happy and pretty optimistic about the future.

That's super helpful. And looking forward, can you add some color on the type of organic growth you're expecting to generate in Q4 and over the next few quarters and if you could break it out by building products and consumer products in the JVs?

Yes, that sounds suspiciously like giving guidance, so we're not going to be able to do that. But we do believe that a lot of the sort of trends that we have been seeing will continue. We're always mindful in our businesses that there are pockets of strength One of the things that really makes us feel good about our business is that we do have businesses and end markets that are influenced by different things. We're not over-indexed to a certain vertical or a certain industry. And so yes, we'll continue to drive organic growth as we optimize and grow the business, and we're certainly always looking for opportunities to grow through acquisitions as well.

Our next question will come from the line of Brian Biros with Thompson Research Group.

This is Steven Ramsey on for Brian. The comment on the tank business into data center, certainly an interesting topic and one that our channel checks point to stunningly bright picture for this segment over the next year or 2 at least. I'm curious on 2 fronts there. Number one, how the pipeline is forming and your visibility into that demand for new data centers? And then secondly, is there much opportunity now or that's coming in the retrofit side of existing data centers?

Steven, it's Joe. Great question. For a lot of our value streams, data centers are an important and growing end market, Wade, Cartatric, Elgin, Heli and Amtrol, which is our water business, to name a few. Specifically on the water side, on the SME side of the business, the cooling tanks that we provide are gaining significant traction as data centers increasingly embrace liquid cooling and there are lots of things from chipsets and things like that, that are driving that dynamic.

For us, our business this year will probably triple. Importantly, next year, we see additional incremental growth. And we honestly don't think it's a year or 2, we think in several years. We also don't think it's all coming at once because when you look at the announced data centers and the announced changes, there is a lag between those announcements and then when things get built. And certainly, when our solutions become part of the overall construction project.

And so visibility-wise, we continue investing in people and process and engineering capability. And so we feel really good about that business for the foreseeable future. It's not just in the tax side of the business. I mentioned we have lots of other businesses that are benefiting from exposure and solutions to do in the data center. We also don't want to overindex today centers either, it's not like this is half of our revenue, but it is growing, and we feel really good about it, and we feel good about the investments that we have made that have led to our success thus far and that we're continuing to make.

That's great color. It all makes sense. And maybe a follow-on question on the same topic. How do you feel about your capacity producing all the various products that go into data centers? And how do you think about managing that capacity given the outlook for multiple years is so bright?

Yes, that's a great question. And certainly, we're not the only company that needs to sort that out as the entire supply chain and ecosystem around data centers continues to be pretty dynamic. From our perspective, we continue to feel like we have capacity and we can grow and we have the ability to continue to think about the best ways to make sure that we are engineering these products and getting them into the hands of our customers on an efficient basis.

Okay. That's helpful. And then last quick one for me. One of the topics from the recent war issues is helium shortages, I'm curious if this is any impact for you guys?

Yes, it's a great question. In the near term, as a domestic sort of supplier of what we do, our sources of helium are also domestic. And so never say never, but right now, I think we're in good shape.

Our next question will come from the line of Walt Liptak with Seaport Research Partners.

Great quarter, guys. I wanted to do some follow-ons to the data center question that was just asked. You ran through a couple of businesses Wave, LSI, Amtrol. And I think there might have been another one that have exposure to data center. I wonder if you could maybe talk about them collectively, how much revenue is there today? How much -- what's the growth rate on all of those? And what do you think your best opportunity is from those multiple spots where you can go after data center projects.

Well, so, as Joe mentioned, we play in a number of different verticals, different businesses to support the growth there. With Wave, it's more of the structural grid and then containment and they have really solid teams in place and capabilities to capture the demand that they're seeing there, which is fast and growing and feel really good about that. ClarkDietrich, more on the structural side, the products that they provide. They're seeing increased volume there and they're able to capture that and feel really good there.

On Elgen, we've talked about it with HVAC components and then struck products. They've seen big increases in their demand over the past couple of years related to data centers and then on LSI, the metal roofing clips. So they're all growing quickly within each of these businesses. I mentioned last quarter, it's less than 10% of each of these businesses individually, but in all cases, it's the fastest-growing area of these businesses. So I would expect that to continue moving forward based on what we can see.

Each of these businesses in different ways. They're either making small investments in just resources to help capture the demand and in some cases, small investments in equipment to make sure we can capitalize on the solutions that the data centers need. So Joe talked about our water business with Amtrol, and we're excited about that opportunity. And our teams are just setting up their strategy to make sure we can capitalize on this moving forward. So we feel really good about that and touches a number of businesses, and the teams are focused there for sure.

Okay. Great. Okay. I'll change gears here and go into maybe just one, the -- during the quarter, we had the situation in the Middle East change with U.S., Iran, it didn't seem like it had much of an impact that was negative because the results were really good, especially the organic growth. But did you see any customer behaviors change in February, March? And how are things trending towards the end of March?

Sure. So the Middle East specifically, well, things are pretty fluid at the end of last week, things look a certain way. And this week, they look a bit more optimistic from the standpoint of getting the Strait of Hormuz open and getting goods and oil flowing to the world. It's a little difficult to forecast any tangible impacts that a prolonged closure would have beyond the obvious, which is the interruptions of global shipping are inflationary, and that just is what it is. So specifically, energy costs are up, including oil, diesel, natural gas and other derivatives, that's true globally. This will have an impact on everybody, whether it's trucking, ocean freight or anything else. There are other inputs that come out of the Middle East. So those will be impacted.

And then specifically to us, our European LPG business had some customers in the Middle East. And right now, we're unable to ship to those customers. So we're certainly hopeful that the situation gets resolved sometime in the near future. But I would say, first of all, we're not at all over-indexed to the Gulf or oil prices generally, since we're predominantly a U.S. manufacturer, but we will take steps to mitigate potential headwinds or price increases with fuel or as they present themselves to us.

Okay. Great. And then kind of along those same lines in the Consumer Products segment, the it looks like a really nice quarter. I wonder if you could talk about inventories, market share. You talked already about the selling price increases, but it seems -- did they take their inventories down too low, and they're just coming -- bringing them back up to a normal level. And you mentioned Balloon Time market share gains? Are there other market share gains as a U.S. manufacturer that's helping the organic revenue?

Yes. Well, so as you said, consumer had a fantastic quarter. They were up 11% growth organically and a number of factors there, the Celebrations business, our Balloon Time business, volume was up there as we've continued to gain share, gain new placements and layer on innovation. So a lot of initiatives working well there and compounding on each other for good results on the Celebrations category. Our outdoor business, volumes were up, and we were able to capitalize on demand there. The tools businesses continue to perform okay, not up significantly, not down significantly. And we talked about some of the demand drivers within kind of repair and remodel activity that are key factors there. But margins for consumer, they were up 240 basis points year-over-year versus the prior year quarter. That was factors I mentioned, higher volumes, improved pricing, favorable mix and really good Q3 overall.

Q3 and Q4 are seasonally strongest quarters in Consumer Products, but we don't see any sign of overstocking from an inventory perspective at our retailers, so feel good about just the demand dynamics there and things to come. Q3 being our strongest quarter typically.

Our next question will come from the line of Susan Maklari with Goldman Sachs.

Can you hear me okay?

Yes.

Okay. Perfect. I wanted to talk a bit about the state of the consumer, where going to have happened and going on in the world are you seeing any change as you think about the spring and just how you're seeing inventories and positioning, especially around the new products and all that momentum that you're seeing?

Sure. So to say the consumer generally for us, consumer -- for our Consumer business, again, we're not broadly correlated with overall consumer trends that a lot of people focused on many of our consumer products are actually geared towards contractors or for professionals. And in those value streams and demand is actually more akin to what you might see in building products, which is stable steady conditions with a little bit of growth in more traditional consumer focused value streams, our products are a lot of times used to elevate the experiences that people are having as they replace more expensive experiences. And so our demand tends to be a bit more resilient than in other categories that you might see in consumer.

From an inventory perspective, we're relatively steady. We approached the winter season with tape and gas and in a pretty good spot, and we partnered really well with our retail customers, and they exited Q3 in a pretty good spot, and we don't believe that there kind of over-indexed or that the channel is overly full. But the other dynamic, Susan, I'd point out is that we do continue to benefit from the innovation. We've opened new doors in gaining share. We talked about the things that are happening with Balloon Time. It's also true in the tools business. And overall, we've got a lot of things that probably won't launch in the next quarter, but over the next year, we've got a number of new products that are also coming to market that we feel pretty good about.

Can you also talk a bit about the JVs. It seems like obviously, with the macro coming through, you're still seeing some of those pressures in [indiscernible] but can you give us an update on how the things are moving there and also within way how you're seeing the dynamics and part of the business? And any other relates to feel versus pricing that you put for earlier this year?

Sure. So Susan, I think I understood your question. You're echoing quite a bit. But I think what your question is around the JVs and a lot of the dynamics there. And so I'll give it a shot, but if I miss anything that you're asking about, make sure you remind me. But take our first, it's a great business. They are a market leader, but they're operating in a pretty tough environment. That environment will improve over time as market conditions allow. They improved sequentially in Q3. We do expect them to be relatively flattish to that number in Q4. But as we kind of look out and we think about interest rates and uncertainties and the headwinds, this is the period where the team at ClarkDietrich is operating exceptionally well. And they have leaned out their processes. They have learned an awful lot about sort of how to deal with different challenging environments that their customers are having there.

I think their customers are feeling better about them than they have in quite a while, and they've really prioritized do business with ClarkDietrich. And so we've got one more, I think, challenging comp for ClarkDietrich, but thereafter, we expect them to continue to do all the things that they're doing, and they'll increasingly contribute to EBITDA growth over the course of time and certainly getting into fiscal '27.

And Wave, as you know, it continues to be a great business with the commercial market being having less opportunities to grow, although we are starting to see some green shoots there. We continue to see strength there in data centers, in health care and education, the verticals and people talk a lot about data centers and their data centers generally are representing a lot of the growth that's available in consumer -- I'm sorry, in commercial. But that will ultimately change. And so when those markets turn and get better, the entire industry, I think, is poised to grow. They continue to do a fantastic job on their own with MPD. That's a great management team and a great leadership team and our partner at Armstrong. We're very happy with Wave and all the work that continues to go in there and a relatively flattish demand environment, they continue to do a fantastic job.

Okay. That color. I'm just going to squeeze one more which is the the weather building products in the third quarter?

Again, great question. And so in Q3, whether it's actually a little bit of a mix bag for us. So the cold and the storms that the eastern half of the country experienced, those starting in December did drive demand for our gas and our other heating products. Those are used for emergency and supplemental heats and from cooking fuel in cases of emergency and lost power. At the same time, the cold and storms caused some delays on construction sites, which has an impact on a number of our businesses. We actually lost several production days in our Building Products facility in the Northeast and a couple in the Midwest because of those storms. And in some cases, you can make up some of that production and shipping with some expenses over time. Sometimes you simply lose those days and a roughly 60-day shipping quarter, those kinds of disruptions aren't needle-moving by themselves, but they do matter and they can put some pressure on manufacturing and conversion costs. So overall, I would say that the weather as is seasonally normal, was a modest positive for us overall.

[Operator Instructions] Our next question is a follow-up from the line of Dan Moore with CJS Securities.

This is Will on again, just one more follow-up that I don't think was asked yet. Can you provide maybe more color and update on the LSI acquisition. How is performance and synergy realization tracking relative to expectations?

Yes, Will, thanks for the follow-up. So really excited about LSI. We closed it midway through the quarter. So there's really just about 6 weeks of results in the quarter, but meeting expectations so far. We're in early days of integration, but really, really excited about that business. And the more we spend time with that team, the more is validating and our conviction increases for what we can do together. As a reminder, they're a leading player in commercial metal roofing clips. This was an attractive niche driven by the reroofing cycle and really strong margin profile and opportunities for us to really capitalize on coming together and making this business better under our ownership. So really excited about that. And lastly, the team there is such a good cultural fit with ours. So we enjoy spending time with them and look forward to the things we can do together.

Our next question comes from the line of Brian McNamara with Canaccord.

You know I'm going to ask about tariffs and tariff advantages. So I'm curious where you guys stand in your tariff advantage product relative to peers on a market share basis or however kind of way you want to posit it. I remember last quarter you guys said you needed to hire 40 more people at your plants to kind of meet increased demand for those products. And I think partly drove part of the gross margin degradation last quarter. So where are we as it relates to kind of the tariffs and kind of your perceived advantage there?

Sure. Brian, a lot has changed, but there has not been a lot of resolution around tariffs in the last couple of months. But from our perspective, we still think that we're a net beneficiary of the tariffs that are announced in place. And as you know, in a lot of our value streams, we are the only domestic manufacturer of certain products. And so potential for competitors need to navigate the Section 232 tariffs, which was not an issue with the Supreme Court. So a level-playing field is always a good thing for us. We believe we have taken market share in multiple value streams and we did absolutely chat in December about the fact that we have added some manufacturing colleagues to meet demand in those businesses. And so we continue to feel like our solutions are resonating and that the competitive dynamic is such that we have the opportunity to compete on the merits and the value that we bring to our customers, and that makes us feel really good.

We've talked about this, but we do have some tariffs impacts that are negative to us, whether it's commodity cost or certainly in the consumer business, the products that are manufactured overseas. And so there's the 3 mitigants that we always leverage our asking our suppliers to partner with us and offset some of those additional costs. We could continue to try and leverage tools and take costs out of our own supply chains everywhere we can. And then if we need to we contemplate pricing actions. And we do feel like where we need to be in all 3 of those areas right now.

And so if you think about aluminum and brass, there's also been talk of these various potential refunds and things like that. We actually don't think that those are going to happen anytime soon. It's just me personally, I'm not sure that the government is going to readily suggest that they want to give a couple of hundred billion dollars back. And so there have been some states or some companies that have actually filed suits. But from that IEPA dynamic, we're going to wait and see how that plays out. But yes, we continue to think about our business and what we can control, and our teams are doing a phenomenal job there.

And actually, Brian, if you think about it for a second, when we talk about our strategy in action, there are a few numbers that might help to tell the story. The 9 months ended in Q3, we've grown our top line by $175 million in between increases in our gross margin and a decrease in our SG&A as a percentage of sales in that same 9-month period. Our adjusted EBITDA margin is up 220 basis points in the wholly-owned businesses. And so you've got a little bit of a decline contribution from the JVs. But overall, I think that's -- if you think about what our strategy really is, which is to optimize and grow our businesses and to keep our SG&A flat as we grow, as Colin mentioned, that's what we're seeing.

And then the environment back to your tariffs question, the environment that we're in, we believe it's steady and it's likely to continue this way, unless something unforeseen. And look, there's a lot going on in the world that what we can see right now, we think steady as she goes from a demand perspective with some green shoots in some places that makes us pretty optimistic.

Great. That's really helpful. I appreciate the color on the data centers, it's becoming a bigger topic for you guys and obviously, the market in general. I think when you guys split, it was a pretty small part of your business. I was hoping you guys could contextualize kind of where you are? I understand if you don't want to quantify per say. I think Colin mentioned it's less than 10% of some of your business lines. But like how big is it today on a qualitative or quantitative business? And how big do you think you can get over the next couple of years?

Yes, Brian. So I'll start there and appreciate the question. I mean it's -- I think all we can say there is it's helping grow a number of our businesses and offsetting some softness in other markets. And then we're doing our best to develop strategies to support this demand. It's unique in each of these value streams. And so I mentioned earlier, whether it's people or equipment or capabilities or partners, we are leveraging all of those tools to develop the best solutions to capture this demand. It is a focus of ours because we see the growth opportunity, but to Joe's point, we're not over-indexed to it by any means. So we're trying to be smart about how we spend our time and resources, but it is an opportunity to capture more incremental growth for us.

And if things play out as we expect, the percentage share across these businesses will increase to data centers as we move forward and that's the best way we could characterize it on top of what Joe shared specifically about our Water business.

Yes. And Brian, I mean, Colin did a really nice job of kind of trying to frame size-wise, what this is for us. I do think it will be bigger a year from now than it is right now. We have made investments. Our solutions are resonating, and we are developing. In some places, these are buildings and buildings need certain things. In other environments, these are very purpose-built buildings that need very specific things. And so our solutions have been customized in a lot of cases.

The other thing that people sometimes focus a lot on data centers, but data centers are, in fact, representing a lot of commercial construction. And so as commercial construction improves, generally speaking, right, volumes in a lot of these spaces will go up because commercial conditions normalize and you still have the data center growth that really we expect to continue for 5-plus years. I think that will add a lot of specific activity around construction and retrofit.

Thanks, everybody, for joining us this morning. We appreciate your time. Have a great week. We look forward to speaking with everybody again soon.

This concludes today's conference call. Thank you all for joining. You may now disconnect.

Good morning, and welcome to the Worthington Enterprises Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded at the request of Worthington Enterprises. If anyone objects, you may disconnect at this time.

I'd now like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.

Thank you, Regina. Good morning, everyone, and thank you for joining us for Worthington Enterprises Second Quarter Fiscal 2026 Earnings Call. On the call today are Joe Hayek, our President and Chief Executive Officer; and Colin Souza, our Chief Financial Officer.

Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information on these risks and uncertainties, please refer to our earnings release issued yesterday after the market close. This is available on the Investor Relations section of our website.

Additionally, our remarks today will include references to non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP measures can also be found in the earnings release. Today's call is being recorded, and a replay will be made available later on our website at worthingtonenterprises.com.

With that, I'll turn the call over to Joe for opening remarks.

Thank you, Marcus, and good morning, everyone. Welcome to Worthington Enterprise's Fiscal 2026 Second Quarter Earnings Call. We had a strong Q2, which is a credit to our teams who continue refining and executing our strategies. I want to thank all of my colleagues for their efforts, focus, growth mindset and for having an unwavering commitment to each other, our company, our customers and our shareholders.

In the quarter, despite market conditions that continue to be mixed, we again delivered strong year-over-year growth in revenue, adjusted EBITDA and earnings per share. Our revenue in Q2 was up over 19% from last year. Excluding revenues from recently acquired Elgen, revenues increased by over 10% year-over-year.

Our adjusted EBITDA grew by 8% year-over-year. And in the last 12 months, our adjusted EBITDA is now $284 million up $49 million from where it was a year ago despite a $15 million negative swing in our equity earnings from ClarkDietrich in that same period. In the last 12 months, our adjusted EBITDA margin is now almost 23% versus 20% a year ago. This strong performance gives us confidence that we are successfully navigating the current environment, gaining share and positioning ourselves for long-term outsized growth when end markets improve.

Our strategy is to optimize our business by growing both organically and through strategic acquisitions while increasing our margins. We're making progress on each of these strategic pillars. We achieved 19% revenue growth in Q2, while our SG&A expenditures declined by 320 basis points as a percentage of sales. Excluding Elgen, we grew revenues by 10% and held SG&A flat.

Our EBITDA grew by $4.3 million as we continue driving value for our customers through innovative products and solutions. We continue to focus on acquiring companies in niche markets with sustainable competitive advantages. Yesterday, we announced our planned acquisition of LSI, a market leader in metal roofing components.

LSI is a great company with an outstanding culture that we believe will enhance our position in engineered building systems, add resilient and retrofit-driven revenue and create long-term value for shareholders. I'll share more details on LSI a bit later.

As we optimize and grow Worthington, we will continue to leverage the Worthington Business System and its three growth drivers, innovation, transformation and M&A to maximize both our near and long-term success. We've generated a lot of momentum with new product launches and our reputation with customers continues to provide us opportunities to grow.

For example, our innovation around large ASME water tanks that help cool data centers, has led to increasing opportunities and several new orders. We're excited about the growth prospects we have in this space going forward. We also recently expanded our capabilities to include the refurbishment of large format propane tanks. An increasingly important service as our customers are using -- are utilizing a hybrid portfolio of new and refurbished tanks as part of their asset and cost management strategies.

In addition, the innovation engine in our celebrations business continues to drive additional placement with retailers and you'll soon be able to buy our Balloon Time products in Costco stores nationwide. Our teams continue to embrace AI in their work, and our transformation mindset provides a framework for how we consider, conceptualize and implement tools that help transform our business. The 80/20 initiative in our water business has had a positive impact on how we approach that business and our business globally, and we're making changes both commercially and operationally as a result.

We've continued our integration of Elgen, which we acquired in June. Elgen's results in Q2 reflect our reset of those operations. Our focus on safety, the additions of new equipment and attracting and retaining the best workforce possible temporarily limited our ability to ship to demand, which impacted Elgen's revenues and margins in the quarter and ultimately impacted our consolidated gross margins. We now have the team in place that we think will take that business to new heights, and we believe that our efforts and investment for the long-term position knows an exceptionally well to grow profitably moving forward.

I mentioned how excited we are about our planned acquisition of LSI earlier, and we're happy to provide a few more details about what we think is a great business that will enhance our position in engineered building systems. LSI is a leading U.S. manufacturer of standing seam metal roofing clips, components and retrofit systems. It's a business we've known for some time and it fully aligns with our strategy of adding leaders in niche markets with attractive margins, resilient demand profiles and core manufacturing competencies that reflect our own.

LSI's products are engineered into OEM-certified roof systems, creating meaningful requalification requirements and high switching costs. The business also benefits from long-standing customer relationships, its reputation for quality and reliability in a domestic manufacturing footprint. We believe that LSI is a best-in-class operator in this category. The purchase price is approximately $205 million.

LSI has a strong financial profile. And in the last 12 months ended September 30, they reported adjusted EBITDA of approximately $22.4 million and net sales of $51.1 million. We expect LSI will be accretive to our adjusted EBITDA margins, adjusted EPS and free cash flows. The transaction is expected to close in January of 2026, and we look forward to welcoming the LSI team to Worthington when it does.

Cautious consumers, muted construction activity and a sluggish housing market can create challenging market conditions. But our people, their talent, resilience and creativity are enabling us to navigate the current environment very well and gain share as we grow organically and leverage our strengths to make strategic acquisitions.

People are our most important asset, and we are pleased that our team continues to be recognized by others. For instance, this month, we were recognized by Computerworld as one of the best places to work in IT for 2026. Newsweek again named us one of America's most responsible companies and entering our country's America 250 celebration, we are honored to receive Victory Media's military-friendly designation with a goal rating for the 11th consecutive year.

We're very proud of our people and the work they continue to do, taking care of our customers and each other. We're executing well and entering 2026, we're positioned to continue growing Worthington and creating meaningful value for all of our stakeholders.

I will now turn it over to Colin, who will take you through some details related to our financial performance in the quarter.

Thank you, Joe, and good morning, everyone. We delivered solid financial results in Q2, reporting GAAP earnings of $0.55 per share compared to $0.56 per share in the prior year period. The current quarter included $0.10 per share of unique items, primarily losses related to a divestiture that occurred within our SES JV and the related revaluation of the marketable securities received as consideration, both of which are included in miscellaneous expense.

The prior year quarter included $0.04 per share of restructuring and other expenses. Excluding these items in both periods, adjusted earnings were $0.65 per share, up from $0.60 per share in the prior year quarter. As a reminder, Q2 is typically our seasonally weakest quarter, and we are pleased to deliver year-over-year growth in adjusted earnings per share, adjusted EBITDA and free cash flow, as our teams continue to execute well, leveraging the Worthington business system to navigate the current environment.

Consolidated net sales for the quarter were $327 million, up over 19% compared to $274 million in the prior year quarter. The increase was primarily driven by higher volumes and building products and the inclusion of Elgen, following our acquisition of that business in June. Gross profit increased to $85 million, up from $74 million last year with gross margin at 25.8% compared to 27% in the prior year quarter.

Adjusted EBITDA was $60 million, up from $56 million in Q2 of last year, and adjusted EBITDA margin was 18.5%. On a trailing 12-month basis, adjusted EBITDA now stands at $284 million. This performance reflects the resilience of our differentiated portfolio and our continued focus on the things we can control. Even in a softer macro environment characterized by mixed consumer sentiment and subdued commercial construction activity.

Turning to our cash flow and capital allocation. We continue to invest in our operations while maintaining a disciplined and balanced approach. Capital expenditures totaled $12 million in the quarter, including $6 million for the last of our planned facility modernization projects. We also returned capital to shareholders through $10 million in dividends and the repurchase of 250,000 shares of our common stock for $14 million at an average price of $54.87 per share.

Our joint venture is once again delivered, providing $34 million in dividends during the quarter, which equates to a 118% cash conversion rate on equity income. Operating cash flow for the quarter was $52 million and free cash flow was $39 million. On a trailing 12-month basis, free cash flow totaled $161 million representing a 96% free cash flow conversion rate relative to adjusted net earnings. This trailing figure still reflects elevated capital expenditures from our facility modernization projects which totaled roughly $30 million over the same period. We have approximately $30 million of modernization spend remaining with most of that expected to occur over the next 3 quarters. As this project is completed, we expect capital expenditures will return to more normalized levels, and we'll see further improvement in free cash flow conversion over time.

Turning to our balance sheet and liquidity. We closed the quarter with $305 million in long-term funded debt and $180 million in cash. Our leverage remains extremely low with ample liquidity, supported by a $500 million revolving credit facility that was fully undrawn and available at quarter end. Net debt was $125 million, resulting in a net debt to trailing adjusted EBITDA ratio of approximately 0.4x, providing significant financial flexibility.

Regarding capital deployment. If completed as planned, the pending acquisition of LSI that Joe discussed earlier should close in January and will be funded primarily with cash on hand, supplemented by modest revolver borrowings. Following the transaction, we expect to maintain a conservative leverage profile and solid liquidity position supported by healthy cash generation of our businesses.

Yesterday, our Board of Directors declared a quarterly dividend of $0.19 per share payable in March 2026. We haven't talked about our SES joint venture performance in a while. They had $1.5 million in losses flow through equity income this quarter. We've completed a divestiture in the quarter of some of the loss-making assets, and believe the business is better positioned moving forward and the financial impact on our results should be minimal.

Let me now turn to our segment performance. In Consumer Products, net sales in Q2 were $120 million up 3% compared to the prior year quarter as continued positive momentum in our celebrations category, helped offset modestly lower volumes. Adjusted EBITDA was flat at $15 million with a 12.7% margin compared to 13.3% in Q2 last year, reflecting stable performance in a cautious consumer environment and the impact of higher conversion costs on lower volumes.

As we move into the back half of our fiscal year, typically a seasonally stronger period for this business, we are well positioned with a portfolio of affordable and essential products that support improving everyday experiences in outdoor living, celebrations and home improvement. Our consumer team remains focused and disciplined as we navigate the current environment, and as we continue to gain new placement and market share, we are positioned to outgrow the market as conditions improve.

In Building Products, Q2 net sales grew 32% year-over-year to $208 million. Growth was driven by higher volumes and contributions from the Elgen acquisition, which closed in June and contributed $25 million in net sales. Excluding Elgen, net sales were up 16% year-over-year, reflecting broad-based strength across multiple categories including heating and cooking, water and in particular, cooling and construction, where our market-leading product portfolio is enabling wider adoption of more environmentally friendly refrigerants.

Adjusted EBITDA for the quarter was $53 million compared to $47 million in the prior year quarter, with an adjusted EBITDA margin of 25.5%. The $6 million increase was primarily driven by volume growth in our wholly owned businesses, partially offset by lower combined equity earnings from the joint ventures. WAVE continued to perform well, contributing $26 million in equity earnings, while ClarkDietrich results were lower in a challenging market environment, contributing $4 million in equity earnings compared to $10 million last year.

Overall, Building Products delivered another solid quarter, and the team continued to execute well. We expect LSI will be another great addition to the portfolio, adding more exposure in attractive end markets with a market leader where we can deploy the Worthington business system to create and enhance value.

In summary, this quarter marks the fifth consecutive quarter of year-over-year growth in adjusted earnings per share and adjusted EBITDA for Worthington Enterprises, demonstrating the consistency and resiliency of our businesses and positioning us for continued success as we head into our seasonally strongest quarters.

At this point, we're happy to take any questions.

[Operator Instructions] Our first question will come from the line of Kathryn Thompson with Thompson Research.

First, I wanted to circle back on your acquisition, of LSI, a similar strategy to Elgen. I wanted to just once again see if you can expand on the strategy for growth from here as you integrate both into the Worthington network. Also importantly, how this -- how you see growth over these from a complementary standpoint, but also not just cost opportunities, but top line opportunities as you expand into the system?

Sure. Good morning, Kathryn, thank you. So a handful of things to unpack there, and we'll try and tag team it. Generally speaking, when we think about M&A, one of the unique aspects of the Worthington Business System is really the complementary nature of how those pillars work together. So specifically for us, M&A goes beyond identifying and acquiring market leaders in niche markets that have sustainable competitive advantages.

As you know, for us, things that start with the a coil of steel, and then that steel is stamped or roll formed gives us real advantages from a manufacturing expertise perspective. So companies that we acquire whose supply chain and manufacturing capabilities mirror our own really create additional opportunities for us.

And so we'll always look to leverage our transformation playbook for companies across our portfolio, no different with companies that we acquired. And so when you think about the actions that we took at Elgen and those were right out of that playbook. In terms of safety, machine guarding, adding new equipment and tweaking the flow of some of those cells, that's really a force multiplier for us. And the third pillar of the Worthington business system is innovation. And at Elgen, and we're pretty convinced that LSI, obviously, there's -- we're limited in what we can say there, because the transaction hasn't actually closed. But we're convinced that innovation is a core part of who they are as well. So we're very excited about accelerating innovation at Elgen. And clearly, as we've learned more about LSI, we're excited about their innovation capabilities as well.

Yes. And Kathryn, I'll just touch on LSI a little more. I think the -- we've shared our acquisition criteria with you before, and Joe touched on a little bit. It's market-leading positions in niche markets, it's higher growth, higher margin opportunities, lower capital intensity and companies that can demonstrate they have a sustainable competitive advantage.

And LSI checked a lot of those boxes or all those boxes for us and makes us really excited about this opportunity. They are a leading player in the commercial metal roofing clip space. It's an attractive end market, a very niche market, but it's led by resilient demand in commercial and the reroofing cycle there for metal roof. Really strong margins and financial profile.

Joe touched on it with EBITDA of $22 million and revenue of $51 million. And the more we spend time on the company, the more we thought there's some meaningful value creation opportunities by plugging them into the Worthington business system. And then lastly, we felt they were just a really strong cultural fit, the more we got to know their people and look forward to working with them once the transaction closes.

Okay. Great. And then a follow-up question. I appreciate color on water tanks and it's something that you have mentioned before on earnings calls and public commentary, just as areas that you benefit from data center and broadly reindustrialization. What are other areas that -- or just maybe help us further understand the opportunities you were involved in that or data center centric?

Sure. So Kathryn, it's Colin. I'll take a shot at that one. And I know Joe shared a little bit with our water tanks and how they solve solution or provide solutions for liquid cooling in data centers and we're excited about that opportunity. That's one example across our portfolio. And it's probably not well understood where all we play and have exposure to data centers like you suggested, WAVE and ClarkDietrich both provide products that end up in data centers, WAVE, with its structural grid and then the DCR acquisition that they did.

Previously ClarkDietrich with some of their products end up in data centers as well. Elgen, the business we acquired in June serves data centers with their HVAC components and struck products. And then the acquisition we announced the signing of yesterday, LSI also serves data centers as there's a number of data centers that have metal roofing and require clips and components there.

So data centers overall, demand is not a significant portion of any of our businesses. But in the aggregate, across our portfolio, it is meaningful and is an opportunity of growth for us.

Okay. Great. And in terms of meaningful, is it percentage of sales that you can estimate that it may contribute?

It would probably be less than 10% of kind of the businesses that I mentioned, but it is one of the faster-growing areas within those businesses.

Our next question will come from the line of Daniel Moore with CJS Securities.

Wanted to dovetail on Kathryn's question on LSI. Just looking at the margin profile, obviously, extremely healthy over 40% adjusted EBITDA margin, trailing 12 months. Just help us understand what drives that? How sustainable and then maybe talk a little bit about kind of the what are the key drivers behind 3% to 5% growth in the market? And a follow-up there.

Sure. And Dan, again, it's Joe. Thank you. We're a little bit limited. Obviously, the transaction is expected to close in January. But as Colin mentioned, LSI is a terrific company, they are in a business that really is driven by, kind of, I'll call it, resilient retrofit. They don't count on new construction for a lot of their growth. They're a market leader. They've been at it for a long time. They have a great reputation with their customers. They're very reliable. They're very creative. And they have really three kind of go-to-market buckets.

The first is what Colin has been talking about, which is the standing team metal roofing clips. They do some work around transportation, but then they also have a business that is really retrofit where you can actually put a new metal roof on top of an existing metal roof that has a lot of great attributes from a cost and value perspective and also from a structural integrity perspective.

Metal roofs along -- along time ago, people figured out that drilling molds and using screws in the different kinds of fasteners was a pretty bad idea from a long-term lease perspective. And so LSI is a market leader. They have a great culture, and we're really excited about the prospects of them becoming part of Worthington in the next few weeks.

Got it. Very helpful. The switching gears, building products, really solid growth, mid-teens on an organic basis. Maybe just talk about how much of that is pricing versus volume? And then you mentioned some of the end markets that obviously are driving that growth maybe as we get into the seasonally stronger period, your confidence that those demand drivers will continue here in the near to midterm.

Yes, Dan, it's a good question. On the building products on the wholly owned portfolio, really good volume contributions across the board across the portfolio there within that business segment. A number of value streams are -- were up year-over-year. I mentioned a few of them earlier, heating and cooking, water, cooling construction, the one that was a little softer is just -- we've talked about it before on the European side, and that's just more challenging economy there.

So we continue to be excited and optimistic on some of the demand and the drivers across that portfolio. And what we're seeing is that trickling through to the margins of that business as well. So EBITDA margins for the wholly owned business up almost 300 basis points year-over-year. And we believe, and we've shared this before, just in a the targets there are still intact for us, which we think this is a low-teens EBITDA margin business over time.

And then, it's really a credit to our teams because it is it is more volume than anything else. And it's because we've been gaining share. We've done a really nice job with innovation, and we've done a really nice job commercially and from an operational manufacturing perspective. So it's a really great story that we continue to see that kind of momentum in really broad swaps across that business.

Very helpful. maybe one or two more. ClarkDietrich. Obviously, contribution hit kind of a new post-pandemic low for the quarter. Talk about what you're seeing there, how much of it was just top line versus maybe costs and what steps can be taken to kind of protect margins from here. So we don't see that dip further.

Sure. ClarkDietrich's a great business. They are a market leader and they're operating in a pretty tough environment, but it's an environment that will improve over time as market conditions allow. I mean, Colin, I think, has a bit more of the details.

Yes. ClarkDietrich, Joe's right, led by a really great team there. They've seen some margin compression as a result of the challenging new construction environment. And that's led to some increased competition in their spaces, particularly from smaller players. So they continue to be a market leader in that space and continue to focus as well on cost savings initiatives.

They've -- their mix has shifted over the last year, 1.5. Because of their breadth and scale of their offering, they can compete better on larger projects. If you think about stadiums, data centers, hospitals, where some of the smaller competitors can't do that. So the mix has shifted, but the profitability levels in those areas are less than their traditional drywall studs space.

So they're doing the right things to take care of their customers. We do expect no worse than flat sequential performance moving forward there. And despite the tough environment, they're performing at pre-COVID levels. And as we see green shoots and construction in the future, they're very well positioned to benefit.

Helpful. Maybe last, just in terms of capital allocation. I bought back some stock in the quarter at levels a little higher than where stock has indicated this morning. Still only a turn of leverage on a pro forma basis following LSI. So from here, would you prefer to delever? Or are you comfortable continuing to opportunistically return cash to shareholders and continue to explore tuck-in M&A?

Yes. Great question. And I would say yes, yes and yes, Dan. We'll continue to think about -- our capital structure will continue to opportunistically look at strategic M&A and return of capital to shareholders. But our formula is such that we talk about it on a regular basis. And so we'll continue to be balanced with a bias toward growth.

Our next question comes from the line of Susan Maklari with Goldman Sachs.

Thank you. Good morning, everyone. My first question is talking about the momentum that you are seeing on the consumer side of the business. You mentioned that Balloon Time is now going to be available in Costco. Can you just give us a bit more color on some of these new partnerships that you're getting into that you're having success with, how much more maybe there is to go there? And then how we should think about the upside from all of this as we do get into the busier spring and summer next year?

So yes, you're right. There is a lot of focus on health of the consumer generally right now. And there's certainly no doubt that consumers are cautious and they are being impacted by economic conditions and prices. I think a couple of things that are unique about our consumer business.

For one, some of our consumer products end up being used by the pro or contractors. And so that user base has proven to be less impacted than -- with by economic conditions than consumers overall. But relative to consumers, generally, remember, our products that are geared towards consumers are pretty affordable. We do not traffic in consumer durables, for instance. And our products are used in a wide swath of activities and experiences. Sometimes those experiences are instead of or are replacing more expensive experiences. And so demand tends to be a bit more resilient than in other categories.

But to your question specifically, our innovation engines are really opening new doors for us, and we think that we're gaining share. I think about the Costco win, additional placement for Sherwin-Williams and Home Depot. We've talked in previous quarters about CVS, Staples, Walgreens. Our store count is actually up overall 63%. And so that innovation is really what's driving that growth and the placement. And so it's helping us navigate the current environment really well. And we think it also positions us for additional growth as conditions improve and people have a bit more disposable income.

And then maybe finally, if you look at the last couple of years in consumer, our revenues in EBITDA are relatively flat. In what many would describe as a pretty down market and in the face of some modest tariff headwinds. And so that gives us confidence that we're doing a lot of the right things there.

Okay. That's great color. Good to hear all that. And then maybe switching to the cost side of the business. You've done a really nice job on SG&A in the last several quarters. Can you talk a bit about the further opportunities there? Where we are just as it relates to the Worthington business systems? And any other upside either in SG&A or actually even in the COGS side of the business as well?

Sure. So I'll probably -- I'll take maybe the gross margin side of the question, Susan. And -- but you're right. And thanks for noticing, yes, we were down 320 basis points from an SG&A perspective from a percentage of sales. But our gross margin was down 120 basis points from a year ago.

Now the majority of that decline is attributable to Elgen and the dynamics that I mentioned earlier. That said, a little bit of the decline was actually related to investments that we're making in growth. So specifically, we've added roughly 40 heads in a few of our facilities to meet increased demand. And it just takes some time for those colleagues of ours to ramp up from a productivity perspective.

But we're really pleased that we've been able to identify and onboard those resources that we think are going to be great colleagues of ours for a while to come. We had some volumes that were down slightly in a couple of our value streams from a seasonal perspective. Winter started a bit later this year than it did last year. And so conversion costs in those businesses were a bit higher. But I think on the SG&A side, which is, as you said, a really good story for us, Colin?

Yes. So as Joe said, SG&A down 320 basis points year-over-year. We've -- as we've talked about before, we continue to focus on cost controls, leveraging technology where we can. Transformation is a part of our business system. It's not just in the front of the house. It's also in the back office as well. So we're trying to maintain as best we can. Our cost and really create that operating leverage to grow and from an SG&A standpoint.

And our targets that we put out there, from a gross margin standpoint, we've been running in the high 20s from a gross margin, and we think we can get to 30% gross margin over time consistently, while driving our SG&A down to 20% as well over time. So we're still -- we feel good about those goals. There's some temporary cost impact in the quarter on the gross margin side, as Joe talked about. But we've been helping offset that from an SG&A standpoint and more of that to come.

Yes. Okay. That's all great to hear. And then maybe I'm going to squeeze one more in, which is it's really nice to see how well WAVE continues to do in this environment. Can you talk a bit about what they're seeing in that business? And anything in terms of the outlook that we should be aware of there?

Yes, Susan. So WAVE, up $2 million year-over-year from a contribution standpoint. Their end markets remain generally stable, though performance varies by sector within there. And as you know, they're driven a little more by repair and remodel activity as well.

So education, health care, transportation and data centers have all been strong for them, while retail and office markets have been weaker, but steady. So they continue to find ways to really enhance margin by ultimately recognizing pain points of their end consumers, so contractors and ultimately delivering enhanced value to those contractors. And that's really valued by those contractors in the market.

And looking ahead, as commercial construction volumes could benefit over time, either as rates decline or just as the market adjusts to current levels, the team at WAVE just continues to do a terrific job and are very well position moving forward. So we're not surprised they're up another quarter from a contribution standpoint and are pleased with kind of where they're at and where they're going.

Our next question comes from the line of Walt Liptak with Seaport Research.

And it looks like a good quarter with just a couple of things outside of your control. So Colin, I think you mentioned just at a high level mix and construction being weaker. And I think on the construction side, you're referring more to ClarkDietrich, but what were you referring to on the mix side?

Yes. So on the construction side, Walt, ClarkDietrich, specifically driven by new construction, they're on the very front end and they're getting intense competition there just as the volumes declined a bit. So that's really what I was referring to how it was subdued and trickling through to our earnings.

Yes. And Walt, that's actually a bit of a contrast to the other parts of our business within construction that are more geared on repair/remodel maintenance. Our cooling and construction business continued to have really strong results and really good growth prospects. And so is a bit of a tail of two construction markets right now. New is still a little slow, but repair and remodel is -- we would consider it pretty healthy.

Okay. Great. I just wanted to make sure I wasn't missing something there. And then on the mix, too, I'm not totally sure I understand the pluses and minuses there because the mix sounds, especially in building products like it was pretty good.

Yes. I think from a mix perspective, if you're talking specifically about ClarkDietrich, their mix has tended to be more towards the large, large projects, stadium infrastructure projects, which is good business, but maybe a bit lower margin profile than more the traditional slightly smaller drywall stud business. That's, I think, what Colin was referring to around ClarkDietrich.

Okay. Good. And then just a follow-up on the previous question about ClarkDietrich. Are they getting into like a seasonally stronger period like these EBITDA levels. I think I heard you say kind of stable, but then if it's seasonally stronger, do you get a lift going into the back half of the year for ClarkDietrich?

Yes. So I mentioned, Walt, just no worse than sequentially flat is the expectation there. Seasonality, it's not to pronounce in ClarkDietrich. Obviously, if it's colder out and they can't get to job sites, that has an impact. But the earnings contribution are impacted by some of the other factors that we've been talking about, whether it's steel pricing or mix of projects as well.

Okay. Great. Okay. And then third quarter last year, I remember that there was like some smaller gas containers that are used for heating that were strong. Is there a comp -- a tougher comp that we should be thinking about? And the weather seems like it's been colder the last month or so, are those small containers enough to be a plus or minus in the third quarter?

Sure. So when we think about that, Walt, it's really around seasonality. Yes. And if you live in the Midwest or the Northeast, you know it's been a pretty cold December. But the strongest seasonal quarters for us are always Q3 and Q4, and that's dovetails with a handful of things.

One, the winter, and some of that temporary or failed backup heat that our products provide to people. When it's exceptionally cold or when their pipes burst or when they need other things and ways of creating ways to cook or to produce heat, and then you also get into people thinking about the spring, the spring construction season and other things that are there. So seasonally speaking, Q3 and last year was strong. And I think we don't see a lot of differences in seasonality this year versus last year.

Our next question will come from the line of Brian McNamara with Canaccord Genuity.

My first one on gross margin, you pretty much answered already, but I'm curious what the gross margin would have looked like Elgen. And then when you would expect to see the benefit from the recent head count additions on the gross margin line?

So it was -- the impacts from Elgen, Brian, if you're talking about 120 basis points, that was the majority of that. There were a couple of other puts and takes. But we would expect for the investments that we made in head count and certainly the investments that we made in the operations at Elgen to start to produce results in Q3 and certainly beyond.

And then there's a lot of, obviously, noise in the gross margin line, very seasonal, very lumpy. So how should investors think about that line item in the back half of the year?

Sure. I don't think it should be seasonally that difference than it's been from a trend perspective in -- call it, in our fiscal 2025. One of the things that's a little unique this year versus last year has been tariffs. And there's a lot that continues to be discussed around tariffs. But from our perspective, we still think that we're a net beneficiary of the tariffs that are announced and in place out there.

So because the level playing field is a good thing for us. We believe we gained share in multiple of our value streams. I mentioned the 40 or so heads that we've hired since the beginning of June to ramp up demand. But more when it comes to the tariff mitigation, what we've talked about this, but I think it's worth revisiting.

There are three primary levers that we can pull to mitigate some of those negative impacts on us. The first is asking our suppliers to help us offset some of that additional cost. We've certainly done that. The second is taking cost out of our own supply chains everywhere that we can, and we've certainly done that. And the third is pricing actions. And so those mitigants can take time to implement and to finalize, but we are pleased that as of early December, we've gotten to a point where we feel like we are -- where we need to be in all three of those areas as we balance our own profitability goals with being a good long-term partner to our customers. But we do feel good about where we are now.

You read my mind on the tariff front. That was my next question. Obviously, you're predominantly a domestic manufacturer. Theoretically, that should provide a cost advantage as it relates to tariffs relative to some of your peers that have significant kind of China sourcing. It doesn't appear overall that -- I know you mentioned share gains, but it doesn't appear that that advantage has played out yet. And I'm curious what you're seeing in the market as it relates to competitive pricing and the relative value your products are providing.

Yes. I think -- so it depends on the markets that we're participating in. In some markets, it's a bit more evident that imported products are just simply more expensive. And in other markets, it's a bit more nuanced.

There are people -- I mean, look at Europe, for instance, the European economy is struggling more than maybe the domestic economy. I think it's in part because of the tariff situation here, a lot of those products are landing in Europe. And so the European manufacturers are effectively facing more of that competition. But from us, from our perspective, we feel really good about where our value is.

We focus really hard on innovation and on doing things that aren't just a price increase or a price increases sake, but we're adding value, and we're partnering with our customers, be they distributors, contractors or retailers understanding where they're at, I mean, it's been a tough row for these retailers since the spring to really understand all these things.

And so we try really hard to add value and lead with data and lead with value. And as you can see in some of our increased placements and are gaining market share, that's paying off. It doesn't manifest itself over a 2-week period. But from our perspective, and keep in mind that we're a long-term focused company we feel really good about our ability to continue doing what we need to, while being a good partner in the long term for our customers.

And that will conclude our question-and-answer session. I will now turn the call back over to Joe Hayek for any closing comments.

Regina, thank you. And thank you, everyone, for joining us this morning. I have a great week and have a wonderful holiday season. Hope you're surrounded by friends and family and people that you love. We look forward to speaking to everybody soon.

This concludes today's conference call. Thank you all for joining. You may now disconnect.